Goodwill and Identifiable Intangible Assets

6 Months Ended

Jun. 29, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Identifiable Intangible Assets

. 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 allocated to the Company’s reporting units in each reportable segment.



	Electronic Systems			Aerospace Systems			Communication Systems			Sensor Systems			Consolidated Total
	(in millions)
Goodwill	$	2,856		$	1,146		$	1,058		$	1,659		$	6,719
Accumulated impairment losses	(43		)	—			(35		)	(26		)	(104		)
December 31, 2017	2,813			1,146			1,023			1,633			6,615
Business acquisitions ⁽¹⁾	16			—			—			43			59
Foreign currency translation adjustments	(15		)	(3		)	—			(5		)	(23		)
June 29, 2018	2,814			1,143			1,023			1,671			6,651
Goodwill	2,857			1,143			1,058			1,697			6,755
Accumulated impairment losses	(43		)	—			(35		)	(26		)	(104		)
	$	2,814		$	1,143		$	1,023		$	1,671		$	6,651

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⁽¹⁾

The increase for the Electronic Systems segment was due to the acquisition of the Latitude Engineering business and the purchase price allocation adjustments for the Doss Aviation and G-Air business acquisitions. The increase for the Sensor Systems segment was due to the acquisition of the Applied Defense Solutions business and the purchase price allocation adjustments for the Adaptive Methods and Kigre business acquisitions.

Identifiable Intangible Assets. The most significant identifiable intangible asset that is separately recognized for the Company’s business acquisitions is customer contractual relationships. All of the Company’s customer relationships are established through written customer contracts (revenue arrangements). The fair value for customer contractual relationships is determined, as of the date of acquisition, based on estimates and judgments regarding expectations for the estimated future after-tax earnings and cash flows (including cash flows for working capital) arising from the follow-on sales on contract (revenue arrangement) renewals expected from the customer contractual relationships over their estimated lives, including the probability of expected future contract renewals and sales, less a contributory assets charge, all of which is discounted to present value. The Company’s indefinite-lived intangible assets include IPR&D.

The table below presents information for the Company’s identifiable intangible assets that are subject to amortization and indefinite-lived intangible assets.



		June 29, 2018						December 31, 2017
	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	15	$	406	$	273	$	133	$	393	$	257	$	136
Technology	10	190		121		69		189		114		75
Other	14	34		14		20		29		14		15
Total subject to amortization		630		408		222		611		385		226
IPR&D	indefinite	66		—		66		66		—		66
Total		$	696	$	408	$	288	$	677	$	385	$	292

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



	Second Quarter Ended				First Half Ended
	June 29, 2018		June 30, 2017		June 29, 2018	June 30, 2017
	(in millions)
Amortization expense	$	11	$	10	22	20

Based on gross carrying amounts at June 29, 2018, the Company’s estimate of amortization expense for identifiable intangible assets for the years ending December 31, 2018 through 2022 is presented in the table below.



	Year Ending December 31,
	2018		2019		2020		2021		2022
	(in millions)
Estimated amortization expense	$	44	$	42	$	33	$	27	$	23

- 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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