Acquisitions, Goodwill and Intangible Assets
 6 Months Ended
Mar. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Acquisitions, Goodwill and Intangible Assets [Text Block]
Acquisitions, Goodwill and Intangible Assets

Acquisitions
On February 25, 2016, the Company acquired the Matrix series projector product line from Christie Digital Systems, a global visual, audio and collaboration solutions company. The product line acquisition was accounted for as a business combination, and the purchase price, net of cash acquired, was $17 million. The Company is in the process of allocating the purchase price and performing a valuation for acquired intangible assets and their useful lives. Based on the Company's preliminary allocation of the purchase price, $5 million has been allocated to goodwill and $12 million to intangible assets. All goodwill resulting from the acquisition is tax deductible. The excess purchase price over net assets acquired, including intangible assets, reflects the Company's view that this acquisition will enhance our industry-leading offerings for military and aviation simulation and training solutions.

On August 6, 2015, the Company acquired 100 percent of the outstanding shares of Newport News, Virginia-based International Communications Group, Inc. (ICG), a leading provider of satellite-based global voice and data communication products and services for the aviation industry. The purchase price, net of cash acquired, was $50 million. Additional post-closing consideration of up to $14 million may be paid, contingent upon the achievement of certain milestones. The Company recorded a $12 million liability on the acquisition date for the fair value of the contingent consideration. The Company is in the process of allocating the purchase price and performing a valuation for acquired intangible assets and their useful lives. Based on the Company's preliminary allocation of the purchase price, $50 million has been allocated to goodwill and $23 million to intangible assets. All goodwill resulting from the acquisition is tax deductible. The excess purchase price over net assets acquired, including intangible assets, reflects the Company's view that this acquisition will broaden the Company's flight deck and connectivity portfolio.

On March 20, 2015, the Company acquired 100 percent of the outstanding shares of Pacific Avionics Pty. Limited (Pacific Avionics), a Singapore-based company specializing in technologies used for wireless information distribution, including in-flight entertainment and connectivity. The purchase price, net of cash acquired, was $24 million. In the fourth quarter of 2015, the purchase price allocation was finalized, with $10 million allocated to intangible assets and $15 million to goodwill, none of which is deductible for tax purposes. The excess purchase price over net assets acquired, including intangible assets, reflects the Company's view that this acquisition will further enhance the Company's cabin products and information management services portfolios.

The ICG and Pacific Avionics acquisitions are included in the Commercial Systems segment and the Matrix product line acquisition is included in the Government Systems segment. The results of operations for all three acquisitions have been included in the Company's operating results for the periods subsequent to the respective acquisition dates. Pro-forma results of operations have not been presented, as the effect of the acquisitions are not material to the Company's consolidated results of operations.

Goodwill
Changes in the carrying amount of goodwill are summarized as follows:
(in millions)
Commercial
Systems
 
Government
Systems
 
Information Management Services
 
Total
Balance at September 30, 2015
$
314

 
$
500

 
$
1,090

 
$
1,904

ICG acquisition adjustment
12

 
—

 
—

 
12

Matrix product line acquisition
—

 
5

 
—

 
5

Foreign currency translation adjustments
—

 
(1
)
 
—

 
(1
)
Balance at March 31, 2016
$
326

 
$
504

 
$
1,090

 
$
1,920



ICG goodwill increased by $12 million in the six months ended March 31, 2016 as a result of purchase accounting adjustments to establish liabilities for product development costs pursuant to certain contractual obligations.

The Company performs an annual impairment test of goodwill and indefinite-lived intangible assets during the second quarter of each fiscal year, or at any time there is an indication goodwill or indefinite-lived intangibles are more-likely-than-not impaired, commonly referred to as triggering events. There have been no such triggering events during any of the periods presented and the Company's second quarter 2016 impairment tests resulted in no impairment.

Intangible Assets
Intangible assets are summarized as follows:
 
March 31, 2016
 
September 30, 2015
(in millions)
Gross
 
Accum
Amort
 
Net
 
Gross
 
Accum
Amort
 
Net
Intangible assets with finite lives:
 
 
 
 
 
 
 
 
 
 
 
Developed technology and patents
$
355

 
$
(206
)
 
$
149

 
$
346

 
$
(195
)
 
$
151

Backlog
6

 
(2
)
 
4

 
5

 
(2
)
 
3

Customer relationships:
 

 
 
 
 
 
 
 
 
 
 
Acquired
340

 
(97
)
 
243

 
338

 
(87
)
 
251

Up-front sales incentives
309

 
(71
)
 
238

 
301

 
(62
)
 
239

License agreements
13

 
(10
)
 
3

 
13

 
(9
)
 
4

Trademarks and tradenames
15

 
(14
)
 
1

 
15

 
(14
)
 
1

Intangible assets with indefinite lives:
 
 
 
 
 
 
 
 
 
 
 
Trademarks and tradenames
48

 
—

 
48

 
47

 
—

 
47

In process research and development
7

 
—

 
7

 
7

 
—

 
7

Intangible assets
$
1,093

 
$
(400
)
 
$
693

 
$
1,072

 
$
(369
)
 
$
703



Rockwell Collins provides up-front sales incentives prior to delivering products or performing services to certain commercial customers in connection with sales contracts. Up-front sales incentives are recorded as a customer relationship intangible asset and are amortized using a units-of-delivery method over the period the Company has received a contractually enforceable right related to the incentives, up to 15 years after entry into service. Amortization is based on the Company's expectation of delivery rates on a program-by-program basis. Amortization begins when the Company starts recognizing revenue as the Company delivers equipment for the program.
Up-front sales incentives consisting of cash payments or customer account credits are amortized as a reduction of sales, whereas incentives consisting of free products are amortized as cost of sales. As of March 31, 2016, the weighted average amortization period remaining for up-front sales incentives was approximately 10 years.
Anticipated annual amortization expense for intangible assets is as follows:
(in millions)
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
Anticipated amortization expense for up-front sales incentives
$
18

 
$
17

 
$
21

 
$
25

 
$
26

 
$
140

Anticipated amortization expense for all other intangible assets
44

 
41

 
38

 
36

 
32

 
231

Total
$
62

 
$
58

 
$
59

 
$
61

 
$
58

 
$
371



Amortization expense for intangible assets for the three and six months ended March 31, 2016 was $17 million and $31 million, respectively, compared to $13 million and $25 million for the three and six months ended March 31, 2015.