Goodwill and Intangible Assets
Goodwill
As of December 31, 2013 and 2012, the Company had goodwill of $284 million and $286 million, respectively. In 2012, $31 million of goodwill was recorded in connection with its acquisition of substantially all of the operating and related assets and certain liabilities of Home Loan Center (see Note 3: Business Combinations), which was allocated to the Direct Banking segment. In 2013, a $2 million adjustment was recorded to reduce goodwill as a result of the finalization of purchase accounting for this acquisition. Additionally, the Company has goodwill of $255 million resulting from its previous acquisition of PULSE, which was allocated to the Payment Services segment.
The Company conducted its annual goodwill impairment test on June 1, 2013 and 2012, at which times management concluded that there was no impairment to goodwill. During the fourth quarter of 2013, the Company changed the date of its annual goodwill impairment test to October 1 and performed an additional impairment test which also resulted in management's conclusion that there was no impairment to goodwill. Additional information regarding the change in the annual goodwill impairment testing date is discussed in Note 2: Summary of Significant Accounting Policies.
Intangible Assets
The Company's amortizable intangible assets resulted from various acquisitions. The May 2013 acquisition of Diners Club Italy, which is part of the Payment Services segment, resulted in the recognition of amortizable intangible assets primarily related to customer relationships. The June 2012 acquisition of Home Loan Center, which is part of the Direct Banking segment, resulted in the recognition of amortizable intangible assets related to proprietary software, non-compete agreements and marketing agreements. The December 2010 acquisition of SLC, which is part of the Direct Banking segment, resulted in the recognition of an amortizable intangible asset relating to acquired customer relationships. The 2005 acquisition of PULSE, which is part of the Payment Services segment, resulted in the recognition of amortizable intangible assets relating to acquired customer relationships and trade name intangibles. Acquired customer relationships for Diners Club Italy consist of those relationships in existence between Diners Club Italy and their customers that have a Diners Club charge card as valued at the date of the acquisition. Acquired customer relationships for SLC consist of those relationships in existence between SLC and the numerous students that carry student loan balances, while for PULSE they consist of those relationships in existence between PULSE and the numerous financial institutions that participate in its network, as valued at the date of the respective acquisition.
Non-amortizable intangible assets consist of trade name intangibles recognized in the acquisition of SLC, along with international transaction processing rights and trade name intangibles recognized in the acquisition of Diners Club in June 2008. During the fourth quarter of 2013, the Company changed the date of its annual impairment test for non-amortizable intangible assets from June 1 to October 1 to coincide with the change in the Company's goodwill impairment test date. No impairment charges were identified during the impairment tests conducted at June 1, 2013 and 2012 or October 1, 2013.
The following table summarizes the Company's intangible assets (dollars in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, |
| | | 2013 | | 2012 |
| Weighted Average Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value | | Gross Carrying Amount | | Accumulated Amortization | | Net Book Value |
Amortizable intangible assets: | | | | | | | | | | | | | |
Customer relationships | 13.7 years | | $ | 78 |
| | $ | 60 |
| | $ | 18 |
| | $ | 72 |
| | $ | 52 |
| | $ | 20 |
|
Trade name and other | 25 years | | 8 |
| | 2 |
| | 6 |
| | 8 |
| | 2 |
| | 6 |
|
Proprietary software | 7 years | | 6 |
| | 2 |
| | 4 |
| | 6 |
| | 1 |
| | 5 |
|
Non-compete agreements | 3 years | | 2 |
| | 1 |
| | 1 |
| | 2 |
| | — |
| | 2 |
|
Marketing agreements and other | 13 months | | 6 |
| | 5 |
| | 1 |
| | 4 |
| | 3 |
| | 1 |
|
Total amortizable intangible assets | | | 100 |
| | 70 |
| | 30 |
| | 92 |
| | 58 |
| | 34 |
|
Non-amortizable intangible assets: | | | | | | | | | | | | | |
Trade names | N/A | | 132 |
| | — |
| | 132 |
| | 132 |
| | — |
| | 132 |
|
International transaction processing rights | N/A | | 23 |
| | — |
| | 23 |
| | 23 |
| | — |
| | 23 |
|
Total non-amortizable intangible assets | | | 155 |
| | — |
| | 155 |
| | 155 |
| | — |
| | 155 |
|
Total intangible assets | | | $ | 255 |
| | $ | 70 |
| | $ | 185 |
| | $ | 247 |
| | $ | 58 |
| | $ | 189 |
|
| | | | | | | | | | | | | |
Amortization expense related to the Company's intangible assets was $12 million, $11 million, $8 million and $1 million for the calendar year ended December 31, 2013, fiscal years ended November 30, 2012 and 2011 and one month ended December 31, 2012, respectively.
The following table presents expected intangible asset amortization expense for the next five years based on intangible assets at December 31, 2013 (dollars in millions): |
| | | |
Year | Amount |
2014 | $ | 9 |
|
2015 | $ | 5 |
|
2016 | $ | 4 |
|
2017 | $ | 3 |
|
2018 | $ | 3 |
|
| |
