ILLINOIS TOOL WORKS INC | 2013 | FY | 3


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


us-gaap:GoodwillAndIntangibleAssetsDisclosureTextBlock