Intangible assets and goodwill
Intangible assets are comprised of the following:
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| | | | | | | | | | | | | | |
| | | | December 31, 2013 |
(Millions of dollars) | | Weighted Amortizable Life (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Customer relationships | | 15 | | $ | 2,653 |
| | $ | (539 | ) | | $ | 2,114 |
|
Intellectual property | | 11 | | 1,821 |
| | (495 | ) | | 1,326 |
|
Other | | 10 | | 274 |
| | (136 | ) | | 138 |
|
Total finite-lived intangible assets | | 13 | | 4,748 |
| | (1,170 | ) | | 3,578 |
|
Indefinite-lived intangible assets - In-process research & development | | | | 18 |
| | — |
| | 18 |
|
Total intangible assets | | | | $ | 4,766 |
| | $ | (1,170 | ) | | $ | 3,596 |
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| | | | | | | | |
| | | | December 31, 2012 |
| | Weighted Amortizable Life (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Customer relationships | | 15 | | $ | 2,756 |
| | $ | (377 | ) | | $ | 2,379 |
|
Intellectual property | | 12 | | 1,767 |
| | (342 | ) | | 1,425 |
|
Other | | 10 | | 299 |
| | (105 | ) | | 194 |
|
Total finite-lived intangible assets | | 13 | | 4,822 |
| | (824 | ) | | 3,998 |
|
Indefinite-lived intangible assets - In-process research & development | | | | 18 |
| | — |
| | 18 |
|
Total intangible assets | | | | $ | 4,840 |
| | $ | (824 | ) | | $ | 4,016 |
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| | | | | | | | |
| | | | December 31, 2011 |
| | Weighted Amortizable Life (Years) | | Gross Carrying Amount | | Accumulated Amortization | | Net |
Customer relationships | | 15 | | $ | 2,811 |
| | $ | (213 | ) | | $ | 2,598 |
|
Intellectual property | | 11 | | 1,794 |
| | (244 | ) | | 1,550 |
|
Other | | 11 | | 299 |
| | (97 | ) | | 202 |
|
Total finite-lived intangible assets | | 13 | | 4,904 |
| | (554 | ) | | 4,350 |
|
Indefinite-lived intangible assets - In-process research & development | | | | 18 |
| | — |
| | 18 |
|
Total intangible assets | | | | $ | 4,922 |
| | $ | (554 | ) | | $ | 4,368 |
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| | | | | | | | |
During 2013, we acquired finite-lived intangible assets aggregating $70 million due to the purchase of Johan Walter Berg AB (Berg). See Note 24 for details on this acquisition.
Gross customer relationship intangibles of $168 million and related accumulated amortization of $25 million were reclassified from Intangible assets to assets held for sale and/or divested during 2013, and are not included in the December 31, 2013 balances in the table above. These transactions were related to the divestiture of portions of the Bucyrus distribution business. See Note 26 for additional information on divestitures and assets held for sale.
During 2012, we acquired finite-lived intangible assets aggregating $120 million due to purchases of Siwei ($112 million) and Caterpillar Tohoku Ltd. (Cat Tohoku) ($8 million). See Note 24 for details on these acquisitions.
Gross customer relationship intangibles of $207 million and related accumulated amortization of $93 million were reclassified from Intangible assets to held for sale and/or divested during 2012, and are not included in the December 31, 2012 balances in the table above. These transactions primarily related to the divestiture of portions of the Bucyrus distribution business and our third party logistics business. See Note 26 for additional information on divestitures and assets held for sale.
Gross customer relationship intangibles of $51 million and related accumulated amortization of $29 million from the All Other segment were impaired during 2012. Fair value of the intangibles was determined using an income approach based on the present value of discounted cash flows. The impairment of $22 million was recognized in Other operating (income) expenses in Statement 1 and included in the All Other segment.
During 2011, we acquired finite-lived intangible assets aggregating $4,167 million primarily due to purchases of Bucyrus International, Inc. (Bucyrus) ($3,901 million), Pyroban Group Ltd. (Pyroban) ($41 million) and MWM Holding GmbH (MWM) ($221 million). See Note 24 for details on these acquisitions.
As described in Note 26, we sold customer relationship intangibles of $63 million associated with the divestiture of a portion of the Bucyrus distribution business in December 2011. Additionally, $186 million of customer relationship intangibles were classified as held for sale at December 31, 2011, and are not included in the table above.
Finite-lived intangible assets are amortized over their estimated useful lives and tested for impairment if events or changes in circumstances indicate that the asset may be impaired. Indefinite-lived intangible assets are tested for impairment at least annually.
Amortization expense related to intangible assets was $371 million, $387 million and $233 million for 2013, 2012 and 2011, respectively.
As of December 31, 2013, amortization expense related to intangible assets is expected to be:
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| | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) |
2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Thereafter |
$ | 365 |
| | $ | 354 |
| | $ | 333 |
| | $ | 331 |
| | $ | 327 |
| | $ | 1,886 |
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| | | | | | | | | | |
During 2013, we acquired net assets with related goodwill of $106 million due to the purchase of Berg. See Note 24 for details on this acquisition.
As discussed in Note 24, we recorded goodwill of $625 million related to our May 2012 acquisition of Siwei. In November 2012, Caterpillar became aware of inventory accounting discrepancies at Siwei which led to an internal investigation. Caterpillar's investigation determined that Siwei had engaged in accounting misconduct prior to Caterpillar's acquisition of Siwei in mid-2012. The accounting misconduct included inappropriate accounting practices involving improper cost allocation that resulted in overstated profit and improper revenue recognition practices involving early and, at times unsupported, revenue recognition.
Because of the accounting misconduct identified in the fourth quarter of 2012, Siwei's goodwill was tested for impairment as of November 30, 2012. We determined the carrying value of Siwei, which is a separate reporting unit, exceeded its fair value at the measurement date, requiring step two in the impairment test process. The fair value of the Siwei reporting unit was determined primarily using an income approach based on the present value of discounted cash flows. We assigned the fair value to the reporting unit's assets and liabilities and determined the implied fair value of goodwill was substantially below the carrying value of the reporting unit's goodwill. Accordingly, we recognized a $580 million goodwill impairment charge, which resulted in goodwill of $45 million remaining for Siwei as of December 31, 2012. The goodwill impairment was a result of changes in the assumptions used to determine the fair value resulting from the accounting misconduct that occurred before the acquisition. There was no tax benefit associated with this impairment charge. The Siwei goodwill impairment charge is reported in the Resource Industries segment.
Additionally, during 2012, we recorded goodwill of $22 million related to the acquisition of Cat Tohoku and finalized the allocation of the Bucyrus and MWM purchase prices to identifiable assets and liabilities, adjusting goodwill from our December 31, 2011 preliminary allocation for Bucyrus and MWM by a reduction of $28 million and an increase of $9 million, respectively. See Note 24 for details on these acquisitions.
During 2011, we acquired net assets with related goodwill aggregating $5,026 million primarily due to purchases of Bucyrus ($4,616 million), Pyroban ($23 million) and MWM ($387 million). See Note 24 for details on these acquisitions.
Goodwill of $65 million, $181 million and $409 million was reclassified to held for sale and/or divested during 2013, 2012 and 2011, respectively, and is not included in the December 31, 2013, 2012 and 2011 respective balances in the table below. The reclassified/divested amount in 2013 was related to the divestiture of portions of the Bucyrus distribution business and the sale of certain Power Systems assets that were accounted for as a business. The reclassified/divested amounts in 2012 and 2011 primarily related to the divestiture of portions of the Bucyrus distribution business. See Note 26 for additional information on divestitures and assets held for sale.
The changes in carrying amount of goodwill by reportable segment for the years ended December 31, 2013, 2012 and 2011 were as follows:
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| | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of dollars) | | December 31, 2012 | | Acquisitions 1 | | Held for Sale and Business Divestitures 2 | | Impairment Loss | | Other Adjustments 3 | | December 31, 2013 |
Construction Industries | | | | | | | | | | | | |
Goodwill | | $ | 382 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | (56 | ) | | $ | 326 |
|
Resource Industries | | | | | | | | | | | | |
Goodwill | | 4,559 |
| | — |
| | (55 | ) | | — |
| | 11 |
| | 4,515 |
|
Impairments | | (602 | ) | | — |
| | — |
| | — |
| | — |
| | (602 | ) |
Net goodwill | | 3,957 |
| | — |
| | (55 | ) | | — |
| | 11 |
| | 3,913 |
|
Power Systems | | | | | | | | | | | | |
Goodwill | | 2,486 |
| | 106 |
| | (10 | ) | | — |
| | 18 |
| | 2,600 |
|
All Other 4 | | | | | | | | | | | | |
Goodwill | | 117 |
| | — |
| | — |
| | — |
| | — |
| | 117 |
|
Consolidated total | | | | | | | | | | | | |
Goodwill | | 7,544 |
| | 106 |
| | (65 | ) | | — |
| | (27 | ) | | 7,558 |
|
Impairments | | (602 | ) | | — |
| | — |
| | — |
| | — |
| | (602 | ) |
Net goodwill | | $ | 6,942 |
| | $ | 106 |
| | $ | (65 | ) | | $ | — |
| | $ | (27 | ) | | $ | 6,956 |
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| | | | | | | | | | | | |
| | December 31, 2011 | | Acquisitions 1 | | Held for Sale and Business Divestitures 2 | | Impairment Loss | | Other Adjustments 3 | | December 31, 2012 |
Construction Industries | | | | | | | | | | | | |
Goodwill | | $ | 378 |
| | $ | 22 |
| | $ | — |
| | $ | — |
| | $ | (18 | ) | | $ | 382 |
|
Resource Industries | | | | | | | | | | | | |
Goodwill | | 4,121 |
| | 597 |
| | (181 | ) | | — |
| | 22 |
| | 4,559 |
|
Impairments | | (22 | ) | | — |
| | — |
| | (580 | ) | | — |
| | (602 | ) |
Net goodwill | | 4,099 |
| | 597 |
| | (181 | ) | | (580 | ) | | 22 |
| | 3,957 |
|
Power Systems | | | | | | | | | | | | |
Goodwill | | 2,486 |
| | 9 |
| | — |
| | — |
| | (9 | ) | | 2,486 |
|
All Other 4 | | | | | | | | | | | | |
Goodwill | | 117 |
| | — |
| | — |
| | — |
| | — |
| | 117 |
|
Consolidated total | | | | | | | | | | | | |
Goodwill | | 7,102 |
| | 628 |
| | (181 | ) | | — |
| | (5 | ) | | 7,544 |
|
Impairments | | (22 | ) | | — |
| | — |
| | (580 | ) | | — |
| | (602 | ) |
Net goodwill | | $ | 7,080 |
| | $ | 628 |
| | $ | (181 | ) | | $ | (580 | ) | | $ | (5 | ) | | $ | 6,942 |
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| | | | | | | | | | | | |
| | December 31, 2010 | | Acquisitions 1 | | Held for Sale and Business Divestitures 2 | | Impairment Loss | | Other Adjustments 3 | | December 31, 2011 |
Construction Industries | | | | | | | | | | | | |
Goodwill | | $ | 357 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 21 |
| | $ | 378 |
|
Resource Industries | | | | | | | | | | | | |
Goodwill | | 73 |
| | 4,616 |
| | (397 | ) | | — |
| | (171 | ) | | 4,121 |
|
Impairments | | (22 | ) | | — |
| | — |
| | — |
| | — |
| | (22 | ) |
Net goodwill | | 51 |
| | 4,616 |
| | (397 | ) | | — |
| | (171 | ) | | 4,099 |
|
Power Systems | | | | | | | | | | | | |
Goodwill | | 2,077 |
| | 410 |
| | — |
| | — |
| | (1 | ) | | 2,486 |
|
All Other 4 | | | | | | | | | | | | |
Goodwill | | 129 |
| | — |
| | (12 | ) | | — |
| | — |
| | 117 |
|
Consolidated total | | | | | | | | | | | | |
Goodwill | | 2,636 |
| | 5,026 |
| | (409 | ) | | — |
| | (151 | ) | | 7,102 |
|
Impairments | | (22 | ) | | — |
| | — |
| | — |
| | — |
| | (22 | ) |
Net goodwill | | $ | 2,614 |
| | $ | 5,026 |
| | $ | (409 | ) | | $ | — |
| | $ | (151 | ) | | $ | 7,080 |
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1 | See Note 24 for additional information. |
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2 | See Note 26 for additional information. |
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3 | Other adjustments are comprised primarily of foreign currency translation. |
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4 | Includes All Other operating segment (See Note 23). |
