Goodwill and Other Intangibles
Goodwill and other indefinitely-lived assets are not amortized, but are subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate an impairment may exist.
When evaluating goodwill for potential impairment, the Company first compares the fair value of its two reporting units, the PSS and RPS, to their respective carrying amounts. The Company estimates the fair value of its reporting units using a combination of a future discounted cash flow valuation model and a comparable market transaction model. If the estimated fair value of the reporting unit is less than its carrying amount, an impairment loss calculation is prepared. The impairment loss calculation compares the implied fair value of a reporting unit’s goodwill with the carrying amount of its goodwill. If the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to the excess. During the third quarter of 2013, the Company performed its required annual goodwill impairment tests. The Company concluded there were no goodwill impairments as of the testing date. The carrying amount of goodwill was $26.5 billion and $26.4 billion as of December 31, 2013 and 2012, respectively (see Note 13 for a breakdown of goodwill by segment). During the year ended December 31, 2013, goodwill increased $12 million in PSS and $135 million in RPS for a total increase of $147 million. The increase in PSS was primarily due to an immaterial acquisition. The $135 million net increase in RPS was due to an immaterial acquisition which increased goodwill by $160 million, which was partially offset by a decrease of $25 million related to foreign currency translation adjustments.
Indefinitely-lived intangible assets are tested for impairment by comparing the estimated fair value of the asset to its carrying value. The Company estimates the fair value of its indefinitely-lived trademark using the relief from royalty method under the income approach. If the carrying value of the asset exceeds its estimated fair value, an impairment loss is recognized and the asset is written down to its estimated fair value. During the third quarter of 2013, the Company performed its annual impairment test of the indefinitely-lived trademark and concluded there was no impairment as of the testing date. The carrying amount of its indefinitely-lived trademark was $6.4 billion as of December 31, 2013 and 2012.
The Company amortizes intangible assets with finite lives over the estimated useful lives of the respective assets, which have a weighted average useful life of 13.0 years. The weighted average useful lives of the Company’s customer contracts and relationships and covenants not to compete are 12.5 years. The weighted average lives of the Company’s favorable leases and other intangible assets are 17.1 years. Amortization expense for intangible assets totaled $494 million, $486 million and $452 million in 2013, 2012 and 2011, respectively. The anticipated annual amortization expense for these intangible assets for the next five years is $457 million in 2014, $427 million in 2015, $398 million in 2016, $375 million in 2017 and $357 million in 2018.
The following table is a summary of the Company’s intangible assets as of December 31:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 |
In millions | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Trademark (indefinitely-lived) | $ | 6,398 |
| | $ | — |
| | $ | 6,398 |
| | $ | 6,398 |
| | $ | — |
| | $ | 6,398 |
|
Customer contracts and relationships and covenants not to compete | 5,840 |
| | (3,083 | ) | | 2,757 |
| | 5,745 |
| | (2,812 | ) | | 2,933 |
|
Favorable leases and other | 800 |
| | (426 | ) | | 374 |
| | 802 |
| | (380 | ) | | 422 |
|
| $ | 13,038 |
| | $ | (3,509 | ) | | $ | 9,529 |
| | $ | 12,945 |
| | $ | (3,192 | ) | | $ | 9,753 |
|
