6. Goodwill and other intangibles
The following is a summary of our goodwill and other intangible assets for our two reportable segments, PBM and Other Business Operations. |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2013 | | December 31, 2012(1) |
(in millions) | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Goodwill | | | | | | | | | | | |
PBM(2) | $ | 29,315.4 |
| | $ | (107.4 | ) | | $ | 29,208.0 |
| | $ | 29,330.4 |
| | $ | (107.4 | ) | | $ | 29,223.0 |
|
Other Business Operations | 97.4 |
| | — |
| | 97.4 |
| | 97.4 |
| | — |
| | 97.4 |
|
| $ | 29,412.8 |
| | $ | (107.4 | ) | | $ | 29,305.4 |
| | $ | 29,427.8 |
| | $ | (107.4 | ) | | $ | 29,320.4 |
|
Other intangible assets | | | | | | | | | | | |
PBM | | | | | | | | | | | |
Customer contracts(3) | $ | 17,602.3 |
| | $ | (3,926.2 | ) | | $ | 13,676.1 |
| | $ | 17,672.7 |
| | $ | (2,038.3 | ) | | $ | 15,634.4 |
|
Trade names | 226.6 |
| | (39.0 | ) | | 187.6 |
| | 226.6 |
| | (16.7 | ) | | 209.9 |
|
Miscellaneous(4) | 111.6 |
| | (47.4 | ) | | 64.2 |
| | 121.6 |
| | (34.9 | ) | | 86.7 |
|
| 17,940.5 |
| | (4,012.6 | ) | | 13,927.9 |
| | 18,020.9 |
| | (2,089.9 | ) | | 15,931.0 |
|
Other Business Operations | | | | | | | | | | | |
Customer relationships(5) | 127.3 |
| | (69.2 | ) | | 58.1 |
| | 138.5 |
| | (63.2 | ) | | 75.3 |
|
Trade names | 35.8 |
| | (6.2 | ) | | 29.6 |
| | 34.7 |
| | (3.1 | ) | | 31.6 |
|
| 163.1 |
| | (75.4 | ) | | 87.7 |
| | 173.2 |
| | (66.3 | ) | | 106.9 |
|
Total other intangible assets | $ | 18,103.6 |
| | $ | (4,088.0 | ) | | $ | 14,015.6 |
| | $ | 18,194.1 |
| | $ | (2,156.2 | ) | | $ | 16,037.9 |
|
| |
(1) | Goodwill associated with the PBM now excludes discontinued operations of our acute infusion therapies line of business. |
| |
(2) | PBM goodwill associated with the Merger has been reduced by $12.7 million due to finalization of the purchase price allocation during the first quarter of 2013. |
| |
(3) | Changes in gross PBM customer contracts and related accumulated amortization reflect a decrease of $84.4 million related to the write-off of fully depreciated assets. Changes in PBM customer contracts also reflect an increase of $14.5 million related to the SmartD asset acquisition, as discussed below. |
| |
(4) | Changes in gross miscellaneous intangible assets and related accumulated amortization reflect a decrease of $10.0 million following the write-off of deferred financing fees related to the early repayment and the redemption of senior notes. See Note 7 - Financing for additional information. |
| |
(5) | Changes in gross customer relationships and related accumulated amortization reflect a decrease of $11.2 million. These balances reflect amounts written off and have no net impact on the net other intangible assets balance. |
A summary of the change in the net carrying value of goodwill by business segment is shown in the following table:
|
| | | | | | | | | | | |
(in millions) | PBM | | Other Business Operations | | Total |
Balance at December 31, 2011 | $ | 5,405.2 |
| | $ | 80.5 |
| | $ | 5,485.7 |
|
Acquisitions(1) | 23,856.5 |
| | 121.8 |
| | 23,978.3 |
|
Discontinued operations(2) | (39.4 | ) | | (88.5 | ) | | (127.9 | ) |
Dispositions(3) | — |
| | (14.0 | ) | | (14.0 | ) |
Foreign currency translation and other | 0.7 |
| | (2.4 | ) | | (1.7 | ) |
Balance at December 31, 2012 | $ | 29,223.0 |
| | $ | 97.4 |
| | $ | 29,320.4 |
|
Purchase price allocation adjustment(4) | (12.7 | ) | | — |
| | (12.7 | ) |
Foreign currency translation | (2.3 | ) | | — |
| | (2.3 | ) |
Balance at December 31, 2013 | $ | 29,208.0 |
| | $ | 97.4 |
| | $ | 29,305.4 |
|
| |
(1) | Represents the acquisition of Medco in April 2012. |
| |
(2) | Represents goodwill associated with the discontinued portions of UBC and our acute infusion therapies line of business. |
| |
(3) | Represents the disposition of $12.0 million of goodwill associated with the sale of CYC and the impairment of $2.0 million associated with EAV. |
| |
(4) | Goodwill associated with the Merger has been adjusted due to the finalization of the purchase price allocation during the first quarter of 2013. |
The aggregate amount of amortization expense of other intangible assets for our continuing operations was $2,037.8 million, $1,632.0 million and $236.0 million for the years ended December 31, 2013, 2012 and 2011, respectively. Amortization expense for the years ended December 31, 2013 and 2012 includes $19.6 million and $43.6 million, respectively, of fees incurred, recorded in interest expense in the consolidated statement of operations, related to our debt instruments. Additionally, in accordance with applicable accounting guidance, amortization of $114.0 million for customer contracts related to the PBM agreement has been included as an offset to revenues for each of the years ended December 31, 2013, 2012 and 2011. The future aggregate amount of amortization expense of other intangible assets for our continuing operations is expected to be approximately $1,767.8 million for 2014, $1,747.4 million for 2015, $1,740.2 million for 2016, $1,322.7 million for 2017 and $1,312.0 million for 2018. The weighted-average amortization period of intangible assets subject to amortization is 16 years in total, and by major intangible class is 5 to 20 years for customer-related intangibles and 2 to 30 years years for other intangible assets.
In connection with an asset acquisition and the disposition of various businesses (see Note 4 - Dispositions), and pursuant to our policies for assessing impairment of goodwill and long-lived assets (see Note 1 - Summary of significant accounting policies), we recorded various additions and charges, as described below.
Asset acquisition of SmartD. Our PBM gross customer contract balance as of December 31, 2013 includes an increase of $14.5 million. This new intangible asset has a useful life of 10 years and is the result of our asset acquisition of the SmartD Medicare Prescription Drug Plan (“PDP”) on September 1, 2013. The asset acquisition added 87,000 covered Medicare lives to our existing PDP offering.
Sale of acute infusion therapies line of business. In connection with entering into an agreement for the sale of the acute infusion therapies line of business, amounts previously classified in continuing operations have been reclassified to discontinued operations for the year ended December 31, 2012. Amounts reclassified as discontinued operations included goodwill of $39.4 million. During the year ended December 31, 2013, we recorded goodwill impairment charges associated with our acute infusion therapies line of business totaling $32.9 million. As a gain was recorded on the sale, the elimination of the remaining goodwill of $6.5 million was not recorded as an impairment.
Sale of portions of UBC. As a result of our determination that portions of the UBC business were not core to our future operations, amounts previously classified in continuing operations were reclassified to discontinued operations in 2012. Amounts reclassified as discontinued operations, and subsequently written off in connection with the sale of these lines of business throughout 2013, included goodwill of $88.5 million and intangible assets of $157.4 million. Intangible assets were comprised of customer relationships with a carrying value of $157.4 million (gross value of $181.4 million less accumulated amortization of $24.0 million). As a gain was recorded on the sale of these businesses, the elimination of these amounts was not recorded as an impairment.
Sale of EAV. In 2012, we recorded impairment charges associated with EAV totaling $11.5 million, which was comprised of $2.0 million of goodwill and $9.5 million of intangible assets and reflected fair value. The write-down of intangible assets was comprised of customer relationships with a carrying value of $3.6 million (gross value of $5.0 million less accumulated amortization of $1.4 million) and trade names with a carrying value of $5.9 million (gross value of $7.0 million less accumulated amortization of $1.1 million).
Sale of Liberty. In 2012, we recorded an impairment charge associated with Liberty totaling $23.0 million to reflect fair value. The write-down was comprised of customer relationships with a carrying value of $24.2 million (gross value of $35.0 million less accumulated amortization of $10.8 million) and trade names with a carrying value of $6.6 million (gross value of $7.0 million less accumulated amortization of $0.4 million). This charge was allocated to these assets on a pro rata basis using the carrying values as of September 30, 2012.
Sale of CYC. In 2012, we completed the sale of CYC, which was included in our Other Business Operations segment. In connection with the sale of this line of business, goodwill of $12.0 million and trade names of $0.7 million were eliminated upon the sale of the business. As a gain was recorded on the sale, the elimination of these amounts was not recorded as an impairment.
