Goodwill and Other Intangible Assets
Goodwill
The following table summarizes the changes in the carrying amount of goodwill, by segment and in total:
|
| | | | | | | | | | | |
(in millions) | Pharmaceutical | | Medical | | Total |
Balance at June 30, 2011 | $ | 2,853 |
| | $ | 993 |
| | $ | 3,846 |
|
Goodwill acquired, net of purchase price adjustments | 16 |
| | 114 |
| | 130 |
|
Foreign currency translation adjustments and other | 7 |
| | (5 | ) | | 2 |
|
Balance at June 30, 2012 | $ | 2,876 |
| | $ | 1,102 |
| | $ | 3,978 |
|
Goodwill acquired, net of purchase price adjustments | 40 |
| | 1,409 |
| | 1,449 |
|
Foreign currency translation adjustments and other | 7 |
| | (4 | ) | | 3 |
|
Impairment | (829 | ) | | — |
| | (829 | ) |
Balance at June 30, 2013 | $ | 2,094 |
| | $ | 2,507 |
| | $ | 4,601 |
|
The increase in the Medical segment goodwill during fiscal 2013 is primarily due to the AssuraMed acquisition. Goodwill recognized in connection with this acquisition primarily represents the expected benefits from synergies of integrating this business, the existing workforce of the acquired entity, expected growth from new customers and long-term brand value. See Note 2 for further discussion of this acquisition.
The decrease in the Pharmaceutical segment goodwill during fiscal 2013 is primarily due to an $829 million ($799 million, net of tax) non-cash goodwill impairment charge related to our Nuclear Pharmacy Services division, which is included in impairments and loss on disposal of assets in our consolidated statements of earnings. This impairment charge does not impact our liquidity, cash flows from operations, or compliance with debt covenants.
In conjunction with the preparation of our consolidated financial statements for fiscal 2013, we recently completed our annual goodwill impairment test, which we perform annually in the fourth quarter. As previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2012, and March 31, 2013, our Nuclear Pharmacy Services division has experienced significant softness in the low-energy diagnostics market. We performed interim goodwill impairment testing for this reporting unit during the three months ended December 31, 2012 and determined that there was no impairment, as the fair value of the reporting unit was estimated to be in excess of its carrying amount.
During the second half of fiscal 2013, we experienced sustained volume declines and price erosion for the core, low-energy products provided by this division. In addition, we experienced reduced sales for some existing high-energy diagnostic products, slower-than-expected adoption of new high-energy diagnostic products, and recent reimbursement developments that may adversely impact the future growth of these products. Using this information, we adjusted our outlook and long-term business plans for this division during our annual budgeting process, which we recently concluded. This update resulted in significant reductions in the anticipated future cash flows and estimated fair value for this reporting unit.
Using a combination of the income-based approach (using a discount rate of 10 percent) and the market-based approach, the fair value of this reporting unit was estimated to be below the carrying amount and therefore indicated impairment. The second step of the impairment test resulted in the impairment of the entire $829 million carrying amount of goodwill for this reporting unit. Our fair value estimates utilize significant unobservable inputs and thus represent Level 3 fair value measurements.
Other Intangible Assets
Other intangible assets are amortized over periods ranging from one to twenty years. The following tables summarize other intangible assets by class at June 30:
|
| | | | | | | | | | | |
| 2013 |
(in millions) | Gross Intangible | | Accumulated Amortization | | Net Intangible |
Indefinite-life intangibles: | | | | | |
Trademarks and other | $ | 11 |
| | $ | — |
| | $ | 11 |
|
Total indefinite-life intangibles | 11 |
| | — |
| | 11 |
|
| | | | | |
Definite-life intangibles: | | | | | |
Customer relationships | 982 |
| | 230 |
| | 752 |
|
Trademarks, trade names and patents | 209 |
| | 49 |
| | 160 |
|
Non-compete agreements | 15 |
| | 10 |
| | 5 |
|
Other | 101 |
| | 56 |
| | 45 |
|
Total definite-life intangibles | 1,307 |
| | 345 |
| | 962 |
|
Total other intangible assets | $ | 1,318 |
| | $ | 345 |
| | $ | 973 |
|
|
| | | | | | | | | | | |
| 2012 |
(in millions) | Gross Intangible | | Accumulated Amortization | | Net Intangible |
Indefinite-life intangibles: | | | | | |
Trademarks and other | $ | 17 |
| | $ | — |
| | $ | 17 |
|
Total indefinite-life intangibles | 17 |
| | — |
| | 17 |
|
| | | | | |
Definite-life intangibles: | | | | | |
Customer relationships | 473 |
| | 141 |
| | 332 |
|
Trademarks, trade names and patents | 45 |
| | 36 |
| | 9 |
|
Non-compete agreements | 14 |
| | 8 |
| | 6 |
|
Other | 93 |
| | 43 |
| | 50 |
|
Total definite-life intangibles | 625 |
| | 228 |
| | 397 |
|
Total other intangible assets | $ | 642 |
| | $ | 228 |
| | $ | 414 |
|
Total amortization of intangible assets was $121 million, $79 million and $68 million for fiscal 2013, 2012 and 2011, respectively. Estimated annual amortization of intangible assets is as follows: $180 million, $150 million, $136 million, $124 million and $90 million for fiscal 2014 through 2018.
The increase in definite-life intangible assets and amortization during fiscal 2013 is primarily due to the acquisition of AssuraMed. See Note 2 for further discussion of this acquisition.
