Goodwill and Other Intangible Assets

9 Months Ended

Oct. 01, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Note I — Goodwill and Other Intangible Assets

Goodwill

The assignment of goodwill by business segment, and changes in the carrying amount of goodwill by business segment, were as follows:


(In millions)	Integrated Mission Systems		Space and Airborne Systems		Communication Systems		Aviation Systems		Total

Balance at January 1, 2021	$	6,499	$	5,232	$	4,153	$	2,992	$	18,876
Goodwill decrease from divestitures(1)	—		—		—		(553)		(553)
Decrease from reclassification to assets of businesses held for sale(2)	—		—		—		(11)		(11)
Impairment of goodwill	—		—		—		(62)		(62)
Currency translation adjustments	(8)		(23)		—		(12)		(43)

Balance at October 1, 2021	$	6,491	$	5,209	$	4,153	$	2,354	$	18,207

Balance at January 3, 2020	$	5,768	$	5,131	$	4,243	$	4,859	$	20,001
Goodwill decrease from divestitures(1)	—		(2)		(9)		(530)		(541)

Impairment of goodwill	—		(5)		—		(364)		(369)
Currency translation adjustments	(3)		(4)		(2)		1		(8)
Other (including adjustments to previously estimated fair value of assets acquired and liabilities assumed)	740		112		(82)		(861)		(91)
Balance at October 2, 2020	$	6,505	$	5,232	$	4,150	$	3,105	$	18,992

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(1)During the three quarters ended October 1, 2021, we completed the divestitures of our CPS business, military training business, Electron Devices business and VSE disposal group and derecognized $553 million of goodwill as part of determining the gain or loss on the sales of these businesses. During the three quarters ended October 2, 2020, we completed the divestitures of our airport security and automation business, Applied Kilovolts business and EOTech business and derecognized $541 million of goodwill as part of determining the gain or loss on the sales of these businesses.

(2)During the three quarters ended October 1, 2021, we assigned $11 million of goodwill associated with pending divestitures to “Assets of businesses held for sale” in our Condensed Consolidated Balance Sheet (Unaudited). See Note B — Business Divestitures in these Notes for additional information.

CPS Business Impairment. During the quarter ended April 2, 2021, we determined the criteria to be classified as held for sale were met with respect to the CPS business within our Aviation Systems segment and assigned $174 million of goodwill to the disposal group on a relative fair value basis. In connection with the preparation of our financial statements for the quarter ended April 2, 2021, we concluded that goodwill related to the CPS business was impaired and we recorded a non-cash impairment charge of $62 million, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited). See Note B — Business Divestitures in these Notes for additional information.

Commercial Aviation Solutions Impairment. Indications of potential impairment of goodwill related to our Commercial Aviation Solutions sector (which is part of our Aviation Systems segment) were present at April 3, 2020 due to COVID and its impact on global air traffic and customer operations, resulting in a decrease in fiscal 2020 outlook for the sector, which we considered to be a triggering event requiring an interim impairment test. Consequently, in connection with the preparation of our financial statements for the quarter ended April 3, 2020, we performed a quantitative impairment test. To test for potential impairment of goodwill related to Commercial Aviation Solutions sector, we prepared an estimate of the fair value of the sector based on a combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions, and projected discounted cash flows. Our methodology for determining the fair value of the sector placed the greatest weight on the expected fair value technique, and was dependent on our best estimates of future sales, operating costs and balance sheet metrics under a range of scenarios for future economic conditions. We assigned a probability to each scenario to calculate a set of probability-weighted projected cash flows, and an appropriate discount rate reflecting the risk in the projected cash flows was used to discount the expected cash flows to present value.

As adverse global economic and market conditions attributable to COVID, including projected declines and subsequent recovery in commercial air traffic and original equipment manufacturer production volumes, continued to develop during fiscal 2020, we continued to monitor for facts and circumstances that could negatively impact key valuation assumptions in determining the fair value of Commercial Aviation Solutions, including valuations, expectations regarding the timing of a return to pre-COVID commercial flight activity and the associated level of uncertainty, long-term revenue and profitability projections, discount rates and general industry, market and macroeconomic conditions. As a result, we determined indications of further impairment of assets related to Commercial Aviation Solutions existed as of July 3, 2020.

As a result of these impairment tests, we concluded that goodwill related to our Commercial Aviation Solutions sector was impaired as of April 3, 2020 and July 3, 2020, and we recorded non-cash impairment charges of $296 million and $54 million, respectively (including $28 million and $8 million, respectively, attributable to noncontrolling interest), which are included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the three quarters ended October 2, 2020. The goodwill impairment charges were primarily not deductible for tax purposes. There was no impairment of goodwill for the quarter ended October 2, 2020.

Applied Kilovolts business impairment. During the quarter ended April 3, 2020, we determined the criteria to be classified as held for sale were met with respect to the Applied Kilovolts business within our Space and Airborne Systems segment and assigned $6 million of goodwill to the Applied Kilovolts business on a relative fair value basis. In connection with the preparation of our financial statements for the quarter ended April 3, 2020, we concluded that goodwill related to the Applied Kilovolts business was impaired and recorded a non-cash impairment charge of $5 million, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the three quarters ended October 2, 2020.

VSE Disposal Group Impairment. During the quarter ended July 3, 2020, we determined the criteria to be classified as held for sale were met with respect to the VSE disposal group within our Aviation Systems segment and assigned $14 million of goodwill to the VSE disposal group on a relative fair value basis. In connection with the preparation of our financial statements for the quarter ended July 3, 2020, we concluded that goodwill related to the VSE disposal group was impaired and recorded a non-cash impairment charge of $14 million, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the three quarters ended October 2, 2020.

Identifiable Intangible Assets

The most significant identifiable intangible asset that is separately recognized for our business combinations is customer relationships. Our customer relationships are established through written customer contracts (revenue arrangements). The fair value for customer 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 arising from the follow-on sales expected from the customer relationships over the estimated lives, including the probability of expected future contract renewals and sales, less a contributory asset charge, all of which is discounted to present value. We assess the recoverability of the carrying value of our finite-lived identifiable intangible assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. We assess the recoverability of the carrying value of indefinite-lived identifiable intangible

assets annually, or under certain circumstances more frequently, such as when events and circumstances indicate there may be an impairment.

Commercial Training Solutions Impairment. During the quarter ended July 2, 2021, we adjusted our Aviation Systems segment reporting to better align our businesses and separated the Commercial Training Solutions (“CTS”) business from our Commercial Aviation Solutions reporting unit, creating a new reporting unit within the Commercial Aviation Solutions sector of our Aviation Systems segment. Immediately before and after our goodwill assignments, we completed an assessment of any potential goodwill impairment under our former and new reporting unit structure and determined that no impairment existed.

To test for potential impairment of the long-lived assets, including identifiable intangible assets and property, plant and equipment, related to CTS, we compared the estimated future cash flows (on an undiscounted basis) to be generated from the use and hypothetical eventual disposition of the asset group to its carrying value and, as a result, we determined the carrying value of the CTS asset group was not recoverable. Next, we prepared an estimate of the fair value of CTS based on a combination of market-based valuation techniques, utilizing quoted market prices and comparable publicly reported transactions and projected discounted cash flows. We compared the fair value of CTS to our carrying value and recorded a $145 million non-cash charge for the impairment of CTS long-lived assets, including $63 million for impairment of identifiable intangible assets, which is included in the “Impairment of goodwill and other assets” line item in our Condensed Consolidated Statement of Income (Unaudited) for the three quarters ended October 1, 2021. See Note H — Property, Plant and Equipment, net in these Notes for additional information.

Identifiable intangible assets are summarized below:


	October 1, 2021						January 1, 2021
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount(1)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Customer relationships	$	6,200	$	1,579	$	4,621	$	6,863	$	1,257	$	5,606
Developed technologies	601		304		297		653		261		392
Contract backlog	13		13		—		19		17		2
Trade names — divisions	108		54		54		129		45		84
Other	3		3		—		3		3		—
Total identifiable intangible assets subject to amortization	6,925		1,953		4,972		7,667		1,583		6,084
In-process research and development	21		—		21		21		—		21
Trade names — corporate	1,803		—		1,803		1,803		—		1,803
Total identifiable intangible assets	$	8,749	$	1,953	$	6,796	$	9,491	$	1,583	$	7,908

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(1)During the three quarters ended October 1, 2021, we derecognized $546 million of intangible assets associated with completed divestitures and reclassified $31 million of intangible assets associated with pending divestitures to “Assets of businesses held for sale” in our Condensed Consolidated Balance Sheet (Unaudited). See Note B — Business Divestitures in these Notes for additional information regarding divestitures.

Amortization expense for identifiable intangible assets, which primarily relates to the all-stock merger between Harris Corporation and L3 Technologies, Inc. completed on June 29, 2019 (“L3Harris Merger”), was $156 million and $476 million for the quarter and three quarters ended October 1, 2021, respectively, and was $179 million and $546 million for the quarter and three quarters ended October 2, 2020, respectively.

Future estimated amortization expense for identifiable intangible assets subject to amortization is as follows:


	(In millions)

Year 1	$	608
Year 2	602
Year 3	574
Year 4	529
Year 5	477
Thereafter	2,182
Total	$	4,972