Goodwill and Intangible Assets

12 Months Ended

Jan. 31, 2014

Goodwill and Intangible Assets:

As discussed in Note 16 — Business Segment Information, the Company has the following reportable segments: Health and Engineering (HES) and National Security Solutions (NSS). Corporate reorganizations occurred in fiscal 2014 resulting in transfers of certain operations between the Company's reportable segments. See Note 16 for further information regarding the Corporate reorganizations.

The balance and changes in the carrying amount of goodwill by segment were as follows:



	HES			NSS		Total
	(in millions)
Balance at January 31, 2012	$	600		$	709	$	1,309
Acquisitions	395			—		395
Corporate reorganizations	(10		)	10		—
Balance at January 31, 2013	985			719		1,704
Corporate reorganizations	(69		)	69		—
Balance at January 31, 2014	$	916		$	788	$	1,704

The carrying value of goodwill by segment at January 31, 2012 has been recast to give effect to the change in reportable segments and for discontinued operations ($491 million for discontinued operations occurring in fiscal 2014). Goodwill corporate reorganizations in fiscal 2014 and 2013 resulted from the transfer of certain operations between reportable segments.

In fiscal 2014, the Company evaluated goodwill for potential impairment, at the reporting unit level, at the beginning of the fourth quarter and during interim periods whenever events or circumstances indicated that the carrying value may not be recoverable. Based on a qualitative analysis performed during the Company's annual impairment evaluation for certain of its reporting units, it was determined that it is more likely than not that the fair values of the reporting units were in excess of the individual reporting unit carrying values, and as a result, a quantitative step one analysis was not necessary. Additionally, based on the results of the quantitative step one analysis for certain other of its reporting units, it was determined that their fair values were in excess of the individual reporting units carrying values. As a result, no goodwill impairments were identified during fiscal 2014. In fiscal 2013 and 2012, the Company performed a quantitative step one analysis of its reporting units and determined there was no goodwill impairment as all of the reporting unit fair values exceeded their carrying values.

Intangible assets, including those arising from preliminary estimates of assets acquired relating to acquisitions, consisted of the following:



	January 31
	2014							2013
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
	(in millions)
Finite-lived intangible assets:
Customer relationships	$	102	$	(54	)	$	48	$	154	$	(57	)	$	97
Software and technology	65		(36		)	29		97		(30		)	67
Other	4		(1		)	3		1		(1		)	—
Total finite-lived intangible assets	171		(91		)	80		252		(88		)	164
Indefinite-lived intangible assets:
In-process research and development	10		—			10		10		—			10
Trade names	4		—			4		4		—			4
Total indefinite-lived intangible assets	14		—			14		14		—			14
Total intangible assets	$	185	$	(91	)	$	94	$	266	$	(88	)	$	178

Amortization expense related to amortizable intangible assets was $36 million, $37 million and $32 million for the fiscal years ended January 31, 2014, 2013, and 2012, respectively.

During fiscal 2014, the Company determined that certain intangible assets consisting of software and technology, associated with the acquisition of Reveal Imaging Technologies, Inc. in fiscal 2011, were not recoverable due to lower projected revenue levels from the associated products and customers. As a result, the Health and Engineering reportable segment recognized an impairment loss within intangible asset impairment charges in the Company's condensed consolidated statements of income of $30 million 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).

During fiscal 2014, the Company determined that certain customer relationship intangible assets associated with the acquisitions of Vitalize and maxIT in fiscal 2012 and 2013, respectively, were not recoverable due to lower projected revenue levels from the associated services and customers. As a result, the Health and Engineering reportable segment recognized an impairment loss within intangible asset impairment charges in the Company's consolidated statements of income of $19 million 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 Company recognized impairment losses for intangible assets of $51 million, including an additional $2 million of other intangible asset impairment charges not described above, for the fiscal year ended January 31, 2014 reported within intangible asset impairment charges in the Company's consolidated statements of income. There were no impairments of intangible assets for fiscal year 2013 and 2012.

The estimated annual amortization expense related to finite-lived intangible assets as of January 31, 2014 was as follows:



Year Ending January 31
	(in millions)
2015	$	22
2016	20
2017	17
2018	11
2019	6
2020 and thereafter	4
	$	80

Actual amortization expense in future periods could differ from these estimates as a result of future acquisitions, divestitures, impairments, the outcome and timing of completion of in-process research and development projects (the assets of which will become amortizable upon completion and placement into service, or will be impaired if abandoned), adjustments to preliminary valuations of intangible assets and other factors.

Leidos, Inc.

Goodwill and Intangible Assets

Goodwill and Intangible Assets:

The balance and changes in the carrying amount of goodwill by segment were as follows:



	HES			NSS		Total
	(in millions)
Balance at January 31, 2012	$	600		$	709	$	1,309
Acquisitions	395			—		395
Corporate reorganizations	(10		)	10		—
Balance at January 31, 2013	985			719		1,704
Corporate reorganizations	(69		)	69		—
Balance at January 31, 2014	$	916		$	788	$	1,704

Intangible assets, including those arising from preliminary estimates of assets acquired relating to acquisitions, consisted of the following:



	January 31
	2014							2013
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
	(in millions)
Finite-lived intangible assets:
Customer relationships	$	102	$	(54	)	$	48	$	154	$	(57	)	$	97
Software and technology	65		(36		)	29		97		(30		)	67
Other	4		(1		)	3		1		(1		)	—
Total finite-lived intangible assets	171		(91		)	80		252		(88		)	164
Indefinite-lived intangible assets:
In-process research and development	10		—			10		10		—			10
Trade names	4		—			4		4		—			4
Total indefinite-lived intangible assets	14		—			14		14		—			14
Total intangible assets	$	185	$	(91	)	$	94	$	266	$	(88	)	$	178

Amortization expense related to amortizable intangible assets was $36 million, $37 million and $32 million for the fiscal years ended January 31, 2014, 2013, and 2012, respectively.

The estimated annual amortization expense related to finite-lived intangible assets as of January 31, 2014 was as follows:



Year Ending January 31
	(in millions)
2015	$	22
2016	20
2017	17
2018	11
2019	6
2020 and thereafter	4
	$	80

- 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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