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Goodwill and Intangible Assets | 9 Months Ended
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Sep. 30, 2018
Goodwill and Intangible Assets |
Goodwill and Intangible Assets | Note 3 – Goodwill and Intangible Assets Goodwill is not amortized, but is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be impairment. Goodwill is evaluated for possible impairment by comparing the fair value of a reporting unit to its carrying value, including the goodwill assigned to that reporting unit. During 2018, the LTC reporting unit has continued to experience challenges that have impacted management’s ability to grow the business at the rate that was originally estimated when the Company made the acquisition of Omnicare, Inc. and when the prior year annual goodwill impairment test was performed. These challenges include lower client retention rates, lower occupancy rates in skilled nursing facilities, the deteriorating financial health of numerous skilled nursing facility customers, and continued facility reimbursement pressures. In June 2018, LTC management submitted their initial budget for 2019 and updated their 2018 annual forecast which showed a deterioration in the financial results for the remainder of 2018 and in 2019, which also caused management to update their long term forecast beyond 2019. Based on these updated projections, management determined that there were indicators that the LTC reporting unit’s goodwill may be impaired and, accordingly, an interim goodwill impairment test was performed during the second quarter of 2018. The results of the impairment test showed that the fair value of the LTC reporting unit was lower than the carrying value, resulting in a $3.9 billion pre-tax goodwill impairment charge in the second quarter of 2018. The fair value of the LTC reporting unit was determined using a combination of a discounted cash flow method and a market multiple method. In addition to the lower financial projections, higher risk-free interest rates and lower market multiples of the peer group companies contributed to the amount of the goodwill impairment charge. As of September 30, 2018, the remaining goodwill balance in the LTC reporting unit is approximately $2.7 billion. During the third quarter of 2018, the Company performed its required annual impairment tests and concluded there was no impairment of goodwill or trade names. On January 2, 2018, the Company sold RxCrossroads (“RxC”) to McKesson Corporation for $725 million, at which time the remaining goodwill of this reporting unit was removed from the condensed consolidated balance sheet. Below is a summary of the changes in the carrying value of goodwill by segment for the nine months ended September 30, 2018:
|  | Pharmacy |  |  |  |  |  |
In millions |  | Services |  | Retail/LTC |  | Total
Balance, December 31, 2017 |  | $ | 21,819 |  | $ | 16,632 |  | $ | 38,451
Acquisitions |  |  | 67 |  |  | 35 |  |  | 102
Foreign currency translation adjustments |  |  | — |  |  | (18) |  |  | (18)
Divestiture of RxCrossroads subsidiary |  |  | — |  |  | (398) |  |  | (398)
Impairment |  |  | — |  |  | (3,921) |  |  | (3,921)
Balance, September 30, 2018 |  | $ | 21,886 |  | $ | 12,330 |  | $ | 34,216
The following is a summary of the Company’s intangible assets as of September 30, 2018 and December 31, 2017:
|  | September 30, 2018 |  | December 31, 2017
|  | Gross |  |  |  |  | Net |  | Gross |  |  |  |  | Net
|  | Carrying |  | Accumulated |  | Carrying |  | Carrying |  | Accumulated |  | Carrying
In millions |  | Amount |  | Amortization |  | Amount |  | Amount |  | Amortization |  | Amount
Trademark (indefinitely-lived) |  | $ | 6,398 |  | $ | — |  | $ | 6,398 |  | $ | 6,398 |  | $ | — |  | $ | 6,398
Customer contracts and relationships and covenants not to compete |  |  | 12,507 |  |  | (6,059) |  |  | 6,448 |  |  | 12,341 |  |  | (5,536) |  |  | 6,805
Favorable leases and other |  |  | 1,125 |  |  | (805) |  |  | 320 |  |  | 1,190 |  |  | (763) |  |  | 427
|  | $ | 20,030 |  | $ | (6,864) |  | $ | 13,166 |  | $ | 19,929 |  | $ | (6,299) |  | $ | 13,630

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- Definition The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -URI http://asc.fasb.org/topic&trid=2144416 + Details
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