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Goodwill and Other Intangible Assets | 12 Months Ended
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Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract] |
Goodwill and Other Intangible Assets |
9. | Goodwill and Other Intangible Assets
On August 17, 2018, we announced a new organizational structure that became effective on January 1, 2019. Under the new structure, we organize our operations around, and publicly report our financial results on, three global business segments: (1) Advisory Services; (2) Global Workplace Solutions and (3) Real Estate Investments (see Note 19). In connection with this change, we reassessed our reporting units as of January 1, 2019. As a result, we have reassigned the goodwill balance to reflect our new segment structure using a relative fair value allocation approach. Under this approach, the fair value of each impacted reporting unit was determined using a combination of the income approach and the market approach and was compared to the goodwill of the impacted regional segments immediately prior to the reorganization to arrive at the reassigned goodwill balance. We are required to test goodwill for impairment at least annually, or more often if circumstances or events indicate there may be a change in the impairment status, in accordance with Topic 350. We considered the change to our reportable segments and the resulting change in our identified reporting units to be a triggering event that required testing of our goodwill for impairment as of January 1, 2019. We elected to perform a quantitative test using a discounted cash flow approach to estimate the fair value of our reporting units. Management’s judgment is required in developing the assumptions for the discounted cash flow model. These assumptions include revenue growth rates, profit margin percentages, discount rates, etc. When we performed our goodwill impairment review as of January 1, 2019, we determined that no impairment existed as the estimated fair value of each of our reporting units was in excess of their carrying value. Our annual assessment of goodwill and other intangible assets deemed to have indefinite lives has historically been completed as of the beginning of the fourth quarter of each year. We performed the 2019, 2018 and 2017 annual assessments as of October 1. When we performed our required annual goodwill impairment review as of October 1, 2019, 2018 and 2017, we determined that no impairment existed as the estimated fair value of our reporting units was in excess of their carrying value. The following table summarizes the changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2018 (dollars in thousands):
|  | Advisory Services |  |  | Global Workplace Solutions |  |  | Real Estate Investments |  |  | Total |
Balance as of December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  | $ | 3,107,787 |  |  | $ | 623,355 |  |  | $ | 592,104 |  |  | $ | 4,323,246 |
Accumulated impairment losses |  |  | (761,448 | ) |  |  | (175,473 | ) |  |  | (131,585 | ) |  |  | (1,068,506 | )
|  |  | 2,346,339 |  |  |  | 447,882 |  |  |  | 460,519 |  |  |  | 3,254,740 |
Purchase accounting entries related to acquisitions |  |  | 188,071 |  |  |  | 288,243 |  |  |  | (5,110 | ) |  |  | 471,204 |
Foreign exchange movement |  |  | (25,904 | ) |  |  | (36,028 | ) |  |  | (11,703 | ) |  |  | (73,635 | )
Balance as of December 31, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  | 3,269,954 |  |  |  | 875,570 |  |  |  | 575,291 |  |  |  | 4,720,815 |
Accumulated impairment losses |  |  | (761,448 | ) |  |  | (175,473 | ) |  |  | (131,585 | ) |  |  | (1,068,506 | )
|  |  | 2,508,506 |  |  |  | 700,097 |  |  |  | 443,706 |  |  |  | 3,652,309 |
Purchase accounting entries related to acquisitions |  |  | 29,544 |  |  |  | 7,657 |  |  |  | 42,176 |  |  |  | 79,377 |
Foreign exchange movement |  |  | 2,720 |  |  |  | 16,279 |  |  |  | 2,808 |  |  |  | 21,807 |
Balance as of December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  | 3,302,218 |  |  |  | 899,506 |  |  |  | 620,275 |  |  |  | 4,821,999 |
Accumulated impairment losses |  |  | (761,448 | ) |  |  | (175,473 | ) |  |  | (131,585 | ) |  |  | (1,068,506 | )
|  | $ | 2,540,770 |  |  | $ | 724,033 |  |  | $ | 488,690 |  |  | $ | 3,753,493 |
In the fourth quarter of 2019, we completed the Telford Acquisition (see Note 4). Additionally, during 2019, we completed eight in-fill acquisitions: a leading advanced analytics software company based in the U.K., a commercial and residential real estate appraisal firm headquartered in Florida, our former affiliate in Omaha, a project management firm in Australia, a valuation and consulting business in Switzerland, a leading project management firm in Israel, a full-service real estate firm in San Antonio with a focus on retail, office, medical office and land, and a debt-focused real estate investment management business in the U.K. On June 12, 2018, we acquired FacilitySource through a stock purchase and merger agreement with its stockholders, including FacilitySource Holdings, LLC, WP X Finance, LP and Warburg Pincus X Partners, LP (FacilitySource Acquisition). FacilitySource, which is reported in our Global Workplace Solutions segment, was acquired to help us build a tech-enabled supply chain capability for the occupier outsourcing industry, which would drive meaningfully differentiated outcomes for leading occupiers of real estate. The final net purchase price was approximately $266.5 million paid in cash, with $263.0 million paid in 2018 and $3.5 million paid in 2019. We financed the transaction with cash on hand and borrowings under our revolving credit facility. The purchase accounting related to the FacilitySource Acquisition has been finalized (with no changes made in 2019 to the preliminary purchase accounting recorded in 2018). The excess purchase price over the estimated fair value of net assets acquired has been recorded to goodwill. The goodwill arising from the FacilitySource Acquisition consisted largely of the synergies and economies of scale expected from combining the operations acquired from FacilitySource with ours. The goodwill recorded in connection with the FacilitySource Acquisition that is deductible for tax purposes was not significant. During 2018, we completed six in-fill acquisitions, the largest of which was the purchase of the remaining 50% equity interest in our longstanding New England joint venture. We also acquired a retail leasing and property management firm in Australia, two firms in Israel (our former affiliate and a majority interest in a local facilities management provider), a commercial real estate services provider in San Antonio, and a provider of real estate and facilities consulting services to healthcare companies across the U.S. Other intangible assets totaled $1,379.5 million, net of accumulated amortization of $1,358.5 million as of December 31, 2019, and $1,441.3 million, net of accumulated amortization of $1,180.4 million, as of December 31, 2018 and are comprised of the following (dollars in thousands):
|  | December 31, |
|  | 2019 |  |  | 2018 |
|  | Gross Carrying Amount |  |  | Accumulated Amortization |  |  | Gross Carrying Amount |  |  | Accumulated Amortization |
Unamortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Management contracts |  | $ | 62,338 |  |  |  |  |  |  | $ | 86,585 |  |  |  |  |
Trademarks |  |  | 56,800 |  |  |  |  |  |  |  | 56,800 |  |  |  |  |
Trade names |  |  | 6,000 |  |  |  |  |  |  |  | 16,250 |  |  |  |  |
|  |  | 125,138 |  |  |  |  |  |  |  | 159,635 |  |  |  |  |
Amortizable intangible assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  |  | 857,772 |  |  | $ | (519,162 | ) |  |  | 843,387 |  |  | $ | (435,225 | )
Mortgage servicing rights |  |  | 803,419 |  |  |  | (319,927 | ) |  |  | 697,322 |  |  |  | (272,852 | )
Trademarks/Trade names |  |  | 345,834 |  |  |  | (92,730 | ) |  |  | 312,699 |  |  |  | (76,514 | )
Management contracts |  |  | 142,767 |  |  |  | (138,891 | ) |  |  | 200,251 |  |  |  | (135,835 | )
Covenant not to compete |  |  | 73,750 |  |  |  | (73,750 | ) |  |  | 73,750 |  |  |  | (73,750 | )
Other |  |  | 389,394 |  |  |  | (214,068 | ) |  |  | 334,657 |  |  |  | (186,217 | )
|  |  | 2,612,936 |  |  |  | (1,358,528 | ) |  |  | 2,462,066 |  |  |  | (1,180,393 | )
Total intangible assets |  | $ | 2,738,074 |  |  | $ | (1,358,528 | ) |  | $ | 2,621,701 |  |  | $ | (1,180,393 | )
Unamortizable intangible assets include management contracts identified as a result of the REIM Acquisitions relating to relationships with open-end funds, a trademark separately identified as a result of the 2001 Acquisition and a trade name separately identified in connection with the REIM Acquisitions, which represents the Clarion Partners trade name in the U.S. These intangible assets have indefinite useful lives and accordingly are not being amortized. Customer relationships relate to existing relationships acquired through acquisitions mainly in our Global Workplace Solutions segment that are being amortized over useful lives of up to 20 years. Mortgage servicing rights represent the carrying value of servicing assets in the U.S. in our Advisory Services segment. The mortgage servicing rights are being amortized over the estimated period that net servicing income is expected to be received, which is typically up to ten years. See Mortgage Servicing Rights discussion within Note 2 for additional information. In connection with the Telford Acquisition, a trademark of approximately $26.7 million was separately identified and is being amortized over 20 years (see Note 4). Trademarks of approximately $280 million were separately identified in connection with the GWS Acquisition and are being amortized over 20 years. Management contracts consist primarily of asset management contracts relating to relationships with closed-end funds and separate accounts in the U.S., Europe and Asia that were separately identified as a result of the REIM Acquisitions. These management contracts are being amortized over useful lives of up to 13 years. Other amortizable intangible assets mainly represent transition costs, which primarily get amortized to cost of revenue over the life of the associated contract. During the year ended December 31, 2019, we recorded an intangible asset impairment of $89.8 million in our Real Estate Investments segment (see Note 7). This non-cash write-off related to intangibles acquired in the REIM Acquisitions, including unamortizable management contracts relating to relationships with open-end funds and the Clarion Partners trade name in the U.S, as well as amortizable management contracts relating to relationships with closed-end funds and separate accounts in the U.S. Amortization expense related to intangible assets was $225.7 million, $258.7 million and $238.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. The estimated annual amortization expense for each of the years ending December 31, 2020 through December 31, 2024 approximates $167.7 million, $152.2 million, $130.4 million, $113.2 million and $101.8 million, respectively.

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