Goodwill and Intangible Assets—Goodwill represents the excess cost over fair value of the net assets of purchased businesses. The Company does not amortize goodwill and intangible assets that have indefinite lives. The Company performs an annual impairment assessment of goodwill and intangible assets with indefinite lives based on the estimated fair value of the related reporting unit or intangible asset. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
When performing its annual impairment assessment, the Company evaluates the goodwill assigned to each of its reporting units for potential impairment by comparing the estimated fair value of the relevant reporting unit to the carrying value. The Company uses various valuation techniques to determine the fair value of its reporting units, including discounting estimated future cash flows based on a detailed cash flow forecast prepared by the relevant reporting unit, market multiples from similar transactions and quoted market prices of relevant public companies. If the fair value of a reporting unit is less than its carrying value, an impairment loss, if any, is recorded for the difference between the implied fair value and the carrying value of the reporting unit's goodwill.
The Company's indefinite-lived intangible assets consist of trademarks and brands. The estimated fair values of these intangible assets are determined based on a relief-of-royalty income approach derived from internally forecasted revenues of the related products. If the fair value of the trademark or brand is less than its carrying value, an impairment loss is recorded for the difference between the estimated fair value and carrying value of the intangible asset.
Amortization and impairment of goodwill and other intangible assets for the years ended December 31, 2013, 2012 and 2011 were as follows: |
| | | | | | | | | | | | |
In millions | | 2013 | | 2012 | | 2011 |
Goodwill: | | | | | | |
Impairment | | $ | — |
| | $ | 1 |
| | $ | — |
|
Intangible Assets: | | | | | | |
Amortization | | 250 |
| | 252 |
| | 219 |
|
Impairment | | 2 |
| | 1 |
| | — |
|
| | $ | 252 |
| | $ | 254 |
| | $ | 219 |
|
Income from discontinued operations included intangible asset amortization of $20 million in 2013, $36 million in 2012 and $39 million in 2011.
The Company performed its annual impairment assessment of goodwill and indefinite-lived intangible assets in the third quarter of 2013, 2012 and 2011. In the third quarter of 2013, these assessments resulted in no goodwill impairment charges and an intangible asset impairment charge of $2 million related to a manufacturer of specialty devices used to measure the flow of gases and fluids in the Test & Measurement and Electronics segment. In 2012, these assessments resulted in a goodwill impairment charge of $1 million related to the pressure sensitive adhesives reporting unit in the Test & Measurement and Electronics segment and an intangible asset impairment charge of $1 million related to a retail food weighing business in the Food Equipment segment. There were no impairment charges in 2011.
A summary of goodwill and indefinite-lived intangible assets that were adjusted to fair value and the related impairment charges included in earnings for the years ended December 31, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 |
In millions | | Book Value | | Fair Value | | Total Impairment Charges | | Book Value | | Fair Value | | Total Impairment Charges |
Goodwill | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 146 |
| | $ | 145 |
| | $ | 1 |
|
Indefinite-lived intangible assets | | 42 |
| | 40 |
| | 2 |
| | 5 |
| | 4 |
| | 1 |
|
The changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
In millions | Auto-motive OEM | | Test & Measurement and Electronics | | Food Equip-ment | | Polymers & Fluids | | Welding | | Construction Products | | Specialty Products | | Industrial Packaging | | Decorative Surfaces | | Total |
Balance, December 31, 2011 | $ | 311 |
| | $ | 1,188 |
| | $ | 199 |
| | $ | 1,019 |
| | $ | 277 |
| | $ | 590 |
| | $ | 870 |
| | $ | 731 |
| | $ | 13 |
| | $ | 5,198 |
|
2012 activity: | | | | | | | | | | | | | | | | | | | |
Acquisitions & divestitures | — |
| | 236 |
| | 1 |
| | 23 |
| | 9 |
| | 6 |
| | 28 |
| | (6 | ) | | (13 | ) | | 284 |
|
Impairment charges | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | | | — |
| | (1 | ) |
Foreign currency translation | 7 |
| | 8 |
| | 3 |
| | 1 |
| | 2 |
| | 7 |
| | 11 |
| | 10 |
| | — |
| | 49 |
|
Balance, December 31, 2012 | 318 |
| | 1,431 |
| | 203 |
| | 1,043 |
| | 288 |
| | 603 |
| | 909 |
| | 735 |
| | — |
| | 5,530 |
|
2013 activity: | | | | | | | | | | | | | | | | | | | |
Acquisitions & divestitures | — |
| | 2 |
| | 86 |
| | 9 |
| | 10 |
| | (2 | ) | | 139 |
| | — |
| | — |
| | 244 |
|
Impairment charges | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (42 | ) | | — |
| | — |
| | (42 | ) |
Foreign currency translation | 2 |
| | — |
| | 5 |
| | (18 | ) | | (4 | ) | | (20 | ) | | 5 |
| | (2 | ) | | — |
| | (32 | ) |
Transfer to assets held for sale | — |
| | (7 | ) | | — |
| | (13 | ) | | — |
| | (20 | ) | | (41 | ) | | (733 | ) | | — |
| | (814 | ) |
Balance, December 31, 2013 | $ | 320 |
| | $ | 1,426 |
| | $ | 294 |
| | $ | 1,021 |
| | $ | 294 |
| | $ | 561 |
| | $ | 970 |
| | $ | — |
| | $ | — |
| | $ | 4,886 |
|
Cumulative goodwill impairment charges, December 31, 2013 | $ | 24 |
| | $ | 83 |
| | $ | 60 |
| | $ | 15 |
| | $ | 5 |
| | $ | 7 |
| | $ | 46 |
| | $ | — |
| | $ | — |
| | $ | 240 |
|
Income from discontinued operations included a goodwill impairment of $42 million in 2013.
The Company periodically makes changes to its management reporting structure to better align its businesses with Company objectives and operating strategies. In 2013 and 2012, the Company made certain changes in its management reporting structure that resulted in changes in some of the reportable segments. Accordingly, the above table has been restated to reflect the reallocation of goodwill based on the current reportable segments. The segment changes did not result in any goodwill impairment charges in 2013 or 2012. See the Segment Information note for further discussion of these segment changes.
Intangible assets as of December 31, 2013 and 2012 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2013 | | 2012 |
In millions | | Cost | | Accumulated Amortization | | Net | | Cost | | Accumulated Amortization | | Net |
Amortizable intangible assets: | | | | | | | | | | | | |
Customer lists and relationships | | $ | 1,631 |
| | $ | (691 | ) | | $ | 940 |
| | $ | 1,749 |
| | $ | (661 | ) | | $ | 1,088 |
|
Patents and proprietary technology | | 588 |
| | (311 | ) | | 277 |
| | 593 |
| | (285 | ) | | 308 |
|
Trademarks and brands | | 689 |
| | (207 | ) | | 482 |
| | 747 |
| | (206 | ) | | 541 |
|
Software | | 202 |
| | (188 | ) | | 14 |
| | 206 |
| | (188 | ) | | 18 |
|
Noncompete agreements | | 155 |
| | (125 | ) | | 30 |
| | 204 |
| | (157 | ) | | 47 |
|
Other | | 113 |
| | (98 | ) | | 15 |
| | 121 |
| | (109 | ) | | 12 |
|
Total amortizable intangible assets | | 3,378 |
| | (1,620 | ) | | 1,758 |
| | 3,620 |
| | (1,606 | ) | | 2,014 |
|
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Trademarks and brands | | 241 |
| | — |
| | 241 |
| | 244 |
| | — |
| | 244 |
|
Total intangible assets | | $ | 3,619 |
| | $ | (1,620 | ) | | $ | 1,999 |
| | $ | 3,864 |
| | $ | (1,606 | ) | | $ | 2,258 |
|
Amortizable intangible assets are being amortized primarily on a straight-line basis over their estimated useful lives of 3 to 20 years.
The estimated amortization expense of intangible assets for the future years ending December 31 is as follows:
|
| | | |
In millions | |
2014 | $ | 238 |
|
2015 | 225 |
|
2016 | 213 |
|
2017 | 194 |
|
2018 | 173 |
|
