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Impairment Losses | 6 Months Ended
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Jun. 30, 2017
Goodwill and Intangible Assets Disclosure [Abstract] |
Impairment Losses | Impairment Losses Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. Goodwill is not amortized, but is subject to an annual impairment test. Refer to Note 2, “Significant Accounting Policies,” for a discussion of our adoption of ASU 2017-04, Simplifying the Test for Goodwill Impairment. We are required to test at least annually for impairment, or more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. When testing goodwill for impairment, we may first assess qualitative factors, such as industry and market factors, cost factors, and changes in overall performance, to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform additional quantitative analysis. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. An impairment loss is measured as the excess of the carrying amount of the reporting unit, including goodwill, over the fair value of the reporting unit. We estimate the fair values of our reporting units using discounted cash flows. In the discounted cash flow analyses, we must make assumptions about a wide variety of internal and external factors, and consider the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants at the measurement date. Significant assumptions include financial projections of free cash flow (including significant assumptions about operations, capital requirements and income taxes), long-term growth rates for determining terminal value beyond the discretely forecasted periods, and discount rates. In the course of developing our restructuring and profitability improvement plan, discussed further in Note 11, “Restructuring and Separation Costs,” we determined that future benefits to be derived from Pathways, including integration with our health plans, would be less than previously anticipated. In addition, poorer than expected year-to-date operating results and lower projections of operating results for periods in the near term led us to conclude that a triggering event for an interim impairment analysis had occurred in the second quarter of 2017. Intangible Assets. We first evaluated Pathways’ finite-lived intangible assets (customer relationships and contract licenses) for impairment, using undiscounted cash flows expected over the longest remaining useful life of the assets tested. See below for a description of the estimates and assumptions used in the cash flow model. Because the undiscounted cash flows over the remaining useful life were less than Pathways’ carrying amount, the intangible assets were impaired. We recorded an impairment loss for the carrying amount of the intangible assets, or $11 million, in the second quarter of 2017. Goodwill. We next tested Pathways’ goodwill for impairment. As described above, we estimated Pathways’ fair value using discounted cash flows, incorporating significant estimates and assumptions related to future periods. Such estimates included anticipated client census which drives service revenue; management’s determination that future benefits to be derived from Pathways (including integration with our health plans) will be less than previously anticipated; current prospects relating to the behavioral services labor market which drives cost of service revenue; and anticipated capital expenditures. In addition, we applied our weighted average cost of capital (WACC) as the best estimate to discount future estimated cash flows to present value. The WACC was based on externally available data considering market participants’ cost of equity and debt, and capital structure. We applied a terminal growth rate that corresponds to Pathways’ long-term growth prospects. The test resulted in a fair value less than Pathways’ carrying amount; therefore, we recorded an impairment loss for the difference, or $59 million, in the second quarter of 2017. In addition to the Pathways impairment loss, we recorded an impairment loss of $2 million for a separate subsidiary’s goodwill that did not pass the impairment test. Both impairment losses were recorded to the Other segment, and reported as “Impairment losses” in the accompanying consolidated statements of operations. There were no impairments of intangible assets or goodwill during 2016. The following table presents the balances of goodwill as of June 30, 2017 and December 31, 2016:
| Health Plans |  | Molina Medicaid Solutions |  | Other |  | Total
| (In millions)
Historical goodwill | $ | 445 |  |  | $ | 71 |  |  | $ | 162 |  |  | $ | 678 |
Accumulated impairment losses at December 31, 2016 | (58 | ) |  | — |  |  | — |  |  | (58 | )
Balance, December 31, 2016 | 387 |  |  | 71 |  |  | 162 |  |  | 620 |
Impairment losses | — |  |  | — |  |  | (61 | ) |  | (61 | )
Balance, June 30, 2017 | $ | 387 |  |  | $ | 71 |  |  | $ | 101 |  |  | $ | 559 |
Accumulated impairment losses at June 30, 2017 | $ | (58 | ) |  | $ | — |  |  | $ | (61 | ) |  | $ | (119 | )

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- Definition The entire disclosure for the details of the charge against earnings resulting from the aggregate write down of all assets from their carrying value to their fair value. Disclosure may also include a description of the impaired asset and facts and circumstances leading to the impairment, amount of the impairment loss and where the loss is located in the income statement, method(s) for determining fair value, and the segment in which the impaired asset is reported. + References No definition available. + Details
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