Goodwill

Goodwill, which represents the cost of acquired companies in excess of the fair value of the net assets at the acquisition date, has been recorded in connection with various acquisitions and is subject to annual impairment testing in the fourth quarter of each year or when events or changes in circumstances indicate the carrying amount may not be recoverable. As noted in Note 2, we recorded $1.5 billion of goodwill in connection with the Centex merger. All goodwill associated with prior transactions had been previously written-off. We evaluate the recoverability of goodwill by comparing the carrying value of our reporting units to their fair value. Fair value is determined using discounted cash flows supplemented by market-based assessments of fair value. Impairment is measured as the difference between the resulting implied fair value of goodwill and its recorded carrying value. The determination of fair value is significantly impacted by estimates related to current market valuations, current and future economic conditions in each of our geographical markets, and our strategic plans within each of our markets. Due to uncertainties in the estimation process and significant volatility in demand for new housing, actual results could differ significantly from such estimates.

As of December 31, 2011, all of the goodwill related to the Centex merger has been written-off as the result of a series of impairments. While the facts and circumstances at the date of each impairment varied, the primary drivers for the impairments were a significant decline in our market capitalization since the date of the Centex merger, in part due to overall volatility in the global financial markets, and ongoing challenges in market conditions for the homebuilding industry. In the third quarters of both 2011 and 2010, we performed event-driven assessments of the recoverability of goodwill. These assessments were necessary primarily due to sustained declines in our market capitalization. In performing the goodwill impairment analyses, we followed similar approaches using management's estimates of the future cash flows for each reporting unit, which are required to consider the decrease in our market capitalization. The results of these analyses determined that goodwill impairment charges of $240.5 million and $654.9 million in the third quarters of 2011 and 2010, respectively, were required. In the second quarter of 2010, we also recorded a goodwill impairment charge of $1.4 million in conjunction with the completion of business combination accounting for the Centex merger and disposed of $1.6 million of goodwill in connection with the sale of the retail title operations acquired with the Centex merger.

These impairments followed the initial impairment of goodwill related to the Centex merger that occurred as part of the annual goodwill impairment test performed in the fourth quarter of 2009. The determinations of fair value in allocating goodwill at the Centex merger date (August 18, 2009) and at the goodwill impairment assessment date (October 31, 2009) followed the same process using similar long-term assumptions. The primary difference was that the valuation at the merger date was based on only the acquired Centex operations reconciled to the purchase price for the Centex merger while the valuation at the assessment date was based on the integrated operations of each reporting unit reconciled to our overall market capitalization. This valuation approach at the assessment date was consistent with our operating structure following the merger in that all acquired Centex operations were integrated with the PulteGroup operations and managed and forecasted at the local market level, not according to legacy operations.

As a result of the goodwill impairment test as of October 31, 2009, we determined that $563.0 million of goodwill was impaired. This impairment resulted from a number of factors, including:


•	a significant decline in our overall market capitalization between the Centex merger date and the goodwill assessment date, which implied that the fair values of our reporting units had decreased;


•	the requirement under ASC 350 to allocate all goodwill to our reporting units even though a significant portion of the goodwill was attributable to the economic value of deferred tax assets and corporate and financing synergies that are not directly reflected in the fair values of the individual reporting units; and


•	the relationship of our market capitalization to our stockholders' equity.

Activity in our goodwill balances by reporting segment consisted of the following ($000's omitted):



	Reporting Segment
	Northeast			Southeast			Florida			Texas			North			Southwest			Financial Services			Total Goodwill
December 31, 2008	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Additions	285,678			353,882			45,838			347,969			272,744			151,204			1,593			1,458,908
Impairments	(285,678		)	(26,849		)	(40,373		)	—			(112,649		)	(97,441		)	—			(562,990		)
December 31, 2009	—			327,033			5,465			347,969			160,095			53,763			1,593			895,918
Additions	494			610			79			600			468			263			—			2,514
Impairments	(494		)	(267,149		)	(5,544		)	(256,474		)	(95,207		)	(31,430		)	—			(656,298		)
Disposals	—			—			—			—			—			—			(1,593		)	(1,593		)
December 31, 2010	—			60,494			—			92,095			65,356			22,596			—			240,541
Impairments	—			(60,494		)	—			(92,095		)	(65,356		)	(22,596		)	—			(240,541		)
December 31, 2011	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Our accumulated goodwill impairment losses totaled $1.8 billion and $1.6 billion at December 31, 2011 and 2010, respectively. This includes goodwill and impairments associated with the Centex merger as well as goodwill and impairments associated with previous acquisitions. The goodwill associated with such previous acquisitions was fully impaired as of December 31, 2008. Goodwill impairment charges are reflected in other expense (income), net.