9. Goodwill and Net Intangible Assets.
The Company tests goodwill for impairment on an annual basis and on an interim basis when certain events or circumstances exist. The Company tests for impairment at the reporting unit level, which is generally at the level of or one level below its business segments. For both the annual and interim tests, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing the two-step impairment test is not required. However, if the Company concludes otherwise, then it is required to perform the first step of the two-step impairment test. Goodwill impairment is determined by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not deemed to be impaired. If the estimated fair value is below carrying value, however, further analysis is required to determine the amount of the impairment. Additionally, if the carrying value of a reporting unit is zero or a negative value and it is determined that it is more likely than not the goodwill is impaired, further analysis is required. The estimated fair values of the reporting units are derived based on valuation techniques the Company believes market participants would use for each of the reporting units.
The estimated fair values are generally determined by utilizing a discounted cash flow methodology or methodologies that incorporate price-to-book and price-to-earnings multiples of certain comparable companies.
The Company completed its annual goodwill impairment testing at July 1, 2013 and July 1, 2012. The Company's impairment testing for each period did not indicate any goodwill impairment as each of the Company's reporting units with goodwill had a fair value that was substantially in excess of its carrying value. Adverse market or economic events could result in impairment charges in future periods.
Goodwill.
Changes in the carrying amount of the Company's goodwill, net of accumulated impairment losses for 2013 and 2012, were as follows:
| Institutional Securities(1) | Wealth Management(1) | Investment Management | Total | |||||
| (dollars in millions) | ||||||||
| Goodwill at December 31, 2011(2) | $ | 343 | $ | 5,603 | $ | 740 | $ | 6,686 |
| Foreign currency translation adjustments and other | (6) | 35 | ─ | 29 | ||||
| Goodwill disposed of during the period(3) | ─ | (65) | ─ | (65) | ||||
| Goodwill at December 31, 2012(2) | $ | 337 | $ | 5,573 | $ | 740 | $ | 6,650 |
| Foreign currency translation adjustments and other | (27) | ─ | ─ | (27) | ||||
| Goodwill disposed of during the period(4)(5) | (17) | (11) | ─ | (28) | ||||
| Goodwill at December 31, 2013(2) | $ | 293 | $ | 5,562 | $ | 740 | $ | 6,595 |
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(1) On January 1, 2013, the International Wealth Management business was transferred from the Wealth Management business segment to the Equity division within the Institutional Securities business segment. Accordingly, prior period amounts have been recast to reflect the International Wealth Management business as part of the Institutional Securities business segment.
(2) The amount of the Company's goodwill before accumulated impairments of $700 million, which included $673 million related to the Institutional Securities business segment and $27 million related to the Investment Management business segment, was $7,295 million and $7,350 million at December 31, 2013 and December 31, 2012, respectively.
(3) The Wealth Management business segment activity represents goodwill disposed of in connection with the sale of Quilter (see Note 1).
(4) In 2011, the Company announced that it had reached an agreement with the employees of its in-house quantitative proprietary trading unit, Process Driven Trading (“PDT”), within the Institutional Securities business segment, whereby PDT employees will acquire certain assets from the Company and launch an independent advisory firm. This transaction closed on January 1, 2013.
(5) The Wealth Management business segment sold the U.K. operations of the Global Stock Plan Services business on May 31, 2013.
Net Intangible Assets.
Changes in the carrying amount of the Company's intangible assets for 2013 and 2012 were as follows:
| Institutional Securities | Wealth Management | Investment Management | Total | |||||
| (dollars in millions) | ||||||||
| Amortizable net intangible assets at December 31, 2011 | $ | 229 | $ | 3,641 | $ | 2 | $ | 3,872 |
| Mortgage servicing rights (see Note 7) | 122 | 11 | — | 133 | ||||
| Indefinite-lived intangible assets (see Note 2) | — | 280 | — | 280 | ||||
| Net intangible assets at December 31, 2011 | $ | 351 | $ | 3,932 | $ | 2 | $ | 4,285 |
| Amortizable net intangible assets at December 31, 2011 | $ | 229 | $ | 3,641 | $ | 2 | $ | 3,872 |
| Foreign currency translation adjustments and other | 5 | 1 | — | 6 | ||||
| Amortization expense | (17) | (322) | (1) | (340) | ||||
| Impairment losses(1) | (4) | — | — | (4) | ||||
| Increase due to Smith Barney tradename(2) | — | 280 | — | 280 | ||||
| Intangible assets acquired during the period | 4 | — | — | 4 | ||||
| Intangible assets disposed of during the period(3) | (42) | — | — | (42) | ||||
| Amortizable net intangible assets at December 31, 2012 | $ | 175 | $ | 3,600 | $ | 1 | $ | 3,776 |
| Mortgage servicing rights (see Note 7) | — | 7 | — | 7 | ||||
| Net intangible assets at December 31, 2012 | $ | 175 | $ | 3,607 | $ | 1 | $ | 3,783 |
| Amortizable net intangible assets at December 31, 2012 | $ | 175 | $ | 3,600 | $ | 1 | $ | 3,776 |
| Foreign currency translation adjustments and other | — | (1) | — | (1) | ||||
| Amortization expense(4) | (117) | (336) | — | (453) | ||||
| Impairment losses(1)(5) | (2) | (42) | — | (44) | ||||
| Amortizable net intangible assets at December 31, 2013 | 56 | 3,221 | 1 | 3,278 | ||||
| Mortgage servicing rights (see Note 7) | — | 8 | — | 8 | ||||
| Net intangible assets at December 31, 2013 | $ | 56 | $ | 3,229 | $ | 1 | $ | 3,286 |
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(1) Impairment losses are recorded within Other expenses in the consolidated statements of income.
(2) The Wealth Management business segment activity represents the reclassification of $280 million from an indefinite-lived to a finite-lived intangible asset (see Note 2).
(3) The Institutional Securities business segment activity represents intangible assets disposed of in connection with the sale of a principal investment.
(4) The Institutional Securities business segment activity primarily represents accelerated recovery of related intangible costs.
(5) The Wealth Management business segment activity primarily represents an impairment charge related to management contracts associated with alternative investment funds.
| At December 31, 2013 | At December 31, 2012 | |||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||
| (dollars in millions) | ||||||||||
| Amortizable intangible assets: | ||||||||||
| Trademarks | $ | 7 | $ | 3 | $ | 7 | $ | 3 | ||
| Tradename | 280 | 12 | 280 | 2 | ||||||
| Customer relationships | 4,058 | 1,177 | 4,058 | 923 | ||||||
| Management contracts | 268 | 146 | 313 | 116 | ||||||
| Research | 176 | 176 | 176 | 126 | ||||||
| Other | 192 | 189 | 192 | 80 | ||||||
| Total amortizable intangible assets | $ | 4,981 | $ | 1,703 | $ | 5,026 | $ | 1,250 | ||
Amortization expense associated with intangible assets is estimated to be approximately $286 million per year over the next five years.