GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2018

GOODWILL AND OTHER INTANGIBLES [Abstract]

The balances and changes in the carrying amount of Goodwill by segment are as follows (in millions of dollars):



	United States			Canada			Other businesses			Total
Balance at January 1, 2017	$	202		$	122		$	203		$	527
Divestiture	(3		)	—			—			(3		)
Impairment	(7		)	—			—			(7		)
Translation	—			8			19			27
Balance at December 31, 2017	192			130			222			544
Impairment	—			—			(105		)	(105		)
Translation	—			(10		)	(5		)	(15		)
Balance at December 31, 2018	$	192		$	120		$	112		$	424



Cumulative goodwill impairment charges, January 1, 2018	$	24	$	32	$	71	$	127
Impairment	—		—		105		105
Cumulative goodwill impairment charges, December 31, 2018	$	24	$	32	$	176	$	232

The balances and changes in Intangible assets - net are as follows (in millions of dollars):



		As of December 31,
		2018						2017
	Weighted average life	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Customer lists and relationships	14.3 years	$	410	$	204	$	206	$	430	$	196	$	234
Trademarks, trade names and other	14.5 years	24		15		9		26		16		10
Non-amortized trade names and other		99		—		99		137		—		137
Capitalized software	4.2 years	657		511		146		633		445		188
Total intangible assets	8.2 years	$	1,190	$	730	$	460	$	1,226	$	657	$	569

Amortization expense recognized on intangible assets was $92 million, $89 million and $82 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in SG&A on the Consolidated Statement of Earnings. Estimated amortization expense for future periods is as follows (in millions of dollars):



Year	Expense
2019	$	84
2020	66
2021	50
2022	26
2023	20
Thereafter	115

Grainger tests reporting units’ goodwill and intangible assets for impairment annually during the fourth quarter and more frequently if impairment indicators exist. Grainger periodically performs qualitative assessments of significant events and circumstances, such as reporting units' historical and current results, assumptions regarding future performance, strategic initiatives and overall economic factors to determine the existence of impairment indicators and assess if it is more likely than not that the fair value of the reporting unit or indefinite-lived intangible assets is less than its carrying value and if a quantitative impairment test is necessary. In the quantitative test, Grainger compares the carrying value of the reporting unit or an indefinite-lived intangible asset with its fair value. Any excess of the carrying value over fair value is recorded as an impairment charge.

The fair value of reporting units is calculated primarily using the discounted cash flow (DCF) method and utilizing value indicators from a market approach to evaluate the reasonableness of the resulting fair values. Estimates of market-participant risk-adjusted weighted average cost of capital are used as a basis for determining the discount rates to apply to the reporting units’ future expected cash flows and terminal value.

Grainger’s indefinite-lived intangibles are primarily trade names. The fair value of trade names is calculated primarily using the relief from royalty method, which estimates the expected royalty savings attributable to the ownership of the trade name asset. The key assumptions when valuing a trade name are the revenue base, the royalty rate and the discount rate.

During the quarter ended September 30, 2018, the Company identified impairment indicators at the Cromwell reporting unit. In the quantitative goodwill impairment test performed in 2017, the fair value of the Cromwell reporting unit exceeded its carrying value by 15%. However, its operating performance deteriorated during 2018 and the Company lowered its short-term forecasts and long-term outlook projections. These factors, combined with sustained economic uncertainty in the U.K. market and higher interest rates, led the Company to conclude that it was more likely than not that the carrying value of Cromwell’s goodwill and intangible assets may not be recoverable. Accordingly, a quantitative test was performed during the quarter ended September 30, 2018.

The Company considered the impact of the prolonged softness and uncertainty in the U.K. market due to Brexit and other unfavorable structural economic conditions, as well as Cromwell’s underperformance compared to expectations, prior year quantitative test assumptions and future performance projections. The revised outlook and uncertainty beyond 2018 were factored into lower revenues, earnings and cash flow projections which, combined with an increase in the discount rate, resulted in the calculated fair value of the Cromwell reporting unit below its carrying value. Accordingly, the Company recorded a full goodwill impairment charge of $105 million with no tax benefit due to the nondeductibility of goodwill for tax purposes. The revised revenue and gross margin projections also resulted in the reduction of royalty rate and value attributable to the Cromwell trade name for which the Company recorded a $34 million impairment charge during the same period.

The impairment charges related to Cromwell goodwill and trade name were recorded in other businesses in SG&A. The Company also performed an impairment test on Cromwell’s intangible assets subject to amortization and long-lived assets using the undiscounted cash flows method and no impairment charge was required.

Grainger performed its annual impairment testing in the fourth quarter. The testing included a qualitative assessment of all other reporting units' goodwill and intangible assets. The Company concluded that it was not more likely than not that the fair value of the reporting unit of indefinite-lived intangible assets is less than its carrying value.

The risk of potential failure of future impairment tests is highly dependent upon a number of assumptions. Changes in assumptions regarding discount rate and future performance, as well as the ability to execute on growth initiatives and productivity improvements, may have a significant impact on future cash flows. Likewise, unfavorable economic environment and changes in market conditions or other factors may result in future impairments of the goodwill and intangible assets.

- 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.

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