Note 12 — Goodwill and Intangible Assets, net
The following summarizes goodwill and intangible assets, net activity:
|
| | | | | | | |
(dollars in millions) | Goodwill | | Intangible assets, net |
Balance at January 1, 2012 | $ | 1,082.9 |
| | $ | 355.8 |
|
Acquisitions | — |
| | 9.3 |
|
Amortization | — |
| | (83.6 | ) |
Impairments | — |
| | (14.0 | ) |
Currency translation effect and other | (3.8 | ) | | (0.7 | ) |
Balance at December 31, 2012 | 1,079.1 |
| | 266.8 |
|
Acquisitions | — |
| | 17.2 |
|
Amortization | — |
| | (85.7 | ) |
Impairments | — |
| | (5.2 | ) |
Currency translation effect and other | (21.4 | ) | | (20.9 | ) |
Balance at December 31, 2013 | $ | 1,057.7 |
| | $ | 172.2 |
|
Accumulated impairment losses for goodwill were $400.2 million as of December 31, 2013 and 2012. Accumulated impairment losses on goodwill were $229.1 million for the EMEA reporting unit and $171.1 million for the former APAC reporting unit.
2013 Activity—Hospira completed its annual impairment test for the fourth quarter with no identified impairment charges.
Intangible asset impairment charges of $5.2 million, primarily in the Americas and APAC segments, primarily related to product rights on an antibiotic product due to supply related concerns and an cardiovascular product due to increased competition and related price erosion. These charges were based on internal discounted cash flow analysis and are included in Restructuring and impairment.
2012 Activity—Hospira completed its annual impairment test for the third quarter with no identified impairment charges. During the fourth quarter of 2012, Hospira changed the date of its annual goodwill impairment test to October 31, and performed an additional impairment test which also resulted in no identified impairment charges.
Intangible asset impairment charges of $14.0 million, primarily in the EMEA segment, included a charge of $8.1 million for a customer relationship intangible asset due to anticipated delayed launch dates for certain products, $3.2 million for a pain management product right due to reduced projected royalties, and $2.7 million for an anti-infective product right due to increased competition and related pricing impact. These charges were based on internal discounted cash flow analysis and are included in Restructuring and impairment.
2011 Activity—During the third quarter 2011, Hospira performed its annual goodwill impairment test and determined that the EMEA reporting unit's goodwill carrying value was in excess of its estimated fair value. Hospira considered the current EMEA economic environment and the decline in Hospira's common stock price beginning late in the third quarter of 2011, which required an increase in the discount rate to present value the estimated cash flows in order to reconcile Hospira's market capitalization to the aggregate estimated fair value of all of Hospira's reporting units. In addition, factors that contributed to the estimated fair value of the EMEA reporting unit being below its carrying value include (i) a decrease in projected revenues and operating margins due to continued competition and related price pressure and overall European region market conditions, and (ii) higher spending expected for strategic product portfolio expansion, in the near-term to mid-term with benefit to revenues and operating margin trailing the increased spending. Accordingly, Hospira recognized a goodwill impairment charge of $151.2 million for the EMEA reporting unit, as the implied fair value of goodwill, a non-recurring Level 3 fair value measurement, was less than its carrying value.
During the fourth quarter of 2011, based on a combination of factors, including continued declines in Hospira's common stock price and declines in projected revenue and operating margins in all reporting units, Hospira concluded that there were sufficient indicators to require an interim goodwill impairment test for the EMEA and former APAC reporting units. Hospira performed the interim goodwill impairment test as of December 31, 2011, which indicated that the EMEA and former APAC reporting units' estimated fair values were below their respective carrying value. Hospira recognized goodwill impairment charges of $77.9 million and $171.1 million for the EMEA and former APAC reporting units, respectively, as the implied fair value of goodwill, a non-recurring Level 3 fair value measurement, was less than their respective carrying value.
Intangible asset impairments of $25.9 million, primarily in the Americas reporting segment, included a charge of $8.7 million for an oncology product right intangible asset due to competitive pricing pressure, $13.1 million related to IPR&D due to changes in various product launch dates, and life-cycle management spending plans and related impacts to commercialization and other intangible impairments of $4.1 million. These charges were based on internal discounted cash flow analysis, a non-recurring Level 3 fair value measurement, and are included in Restructuring and impairment.
Intangible assets, net as of December 31, consist of the following:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Intangible Assets, Net |
Classification (dollars in millions) | 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
Product rights and other | $ | 562.6 |
| | $ | 624.2 |
| | $ | (422.9 | ) | | $ | (389.0 | ) | | $ | 139.7 |
| | $ | 235.2 |
|
Customer relationships | 11.9 |
| | 12.7 |
| | (7.8 | ) | | (6.8 | ) | | 4.1 |
| | 5.9 |
|
IPR&D | 2.2 |
| | 3.8 |
| | — |
| | — |
| | 2.2 |
| | 3.8 |
|
Technology | 48.9 |
| | 36.7 |
| | (22.7 | ) | | (14.8 | ) | | 26.2 |
| | 21.9 |
|
| $ | 625.6 |
| | $ | 677.4 |
| | $ | (453.4 | ) | | $ | (410.6 | ) | | $ | 172.2 |
| | $ | 266.8 |
|
Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives (1 to 16 years, weighted average 9 years). Indefinite lived intangibles, principally IPR&D, are not amortized until completion, regulatory approval or discontinuation. Intangible asset amortization expense was $85.7 million, $83.6 million and $91.5 million in 2013, 2012 and 2011, respectively. Intangible asset amortization for each of the five succeeding fiscal years is estimated at $80.5 million for 2014, $45.8 million for 2015, $25.0 million for 2016, $15.0 million for 2017, and $5.1 million for 2018.
