NOTE 8. GOODWILL AND INTANGIBLE ASSETS, NET
Changes in goodwill for the fiscal year ended June 30, 2013 and 2012 are as follows:
|
| | | | | | | | | | | | | | | |
| Employer Services | | PEO Services | | Dealer Services | | Total |
Balance at June 30, 2011 | $ | 1,841.7 |
| | $ | 4.8 |
| | $ | 1,133.8 |
| | $ | 2,980.3 |
|
Additions and other adjustments, net | 106.8 |
| | — |
| | 56.2 |
| | 163.0 |
|
Currency translation adjustments | (60.9 | ) | | — |
| | (20.4 | ) | | (81.3 | ) |
Balance at June 30, 2012 | $ | 1,887.6 |
| | $ | 4.8 |
| | $ | 1,169.6 |
| | $ | 3,062.0 |
|
Additions and other adjustments, net | 29.4 |
| | — |
| | 0.8 |
| | 30.2 |
|
Currency translation adjustments | 4.5 |
| | — |
| | (1.4 | ) | | 3.1 |
|
Goodwill impairment | (42.7 | ) | | — |
| | — |
| | (42.7 | ) |
Balance at June 30, 2013 | $ | 1,878.8 |
| | $ | 4.8 |
| | $ | 1,169.0 |
| | $ | 3,052.6 |
|
During the fourth quarter of fiscal 2013, the Company recorded an impairment charge of $42.7 million related to the ADP AdvancedMD reporting unit. The goodwill impairment was due to a decrease in the estimated fair value of the business resulting from a decline in the sales growth and profitability projections of the business.
The remeasurement of goodwill is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using Company-specific information. The Company determined the fair value utilizing the income approach and the market approach. Under the income approach, the Company calculated the fair value based on the present value of the estimated cash flows. Cash flow projections were based on management's estimates of revenue growth rates and net operating income margins, taking into consideration market and industry conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the risk, size premium, and business specific characteristics related to the business's ability to execute on the projected cash flows. Under the market approach, the Company evaluated the fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit. The unobservable inputs used to measure the fair value included projected revenue growth rates, profitability projections, working capital assumptions, the weighted average cost of capital, the determination of appropriate market comparison companies, and terminal growth rates.
Because the annual impairment test indicated that ADP AdvancedMD's carrying value exceeded its estimated fair value, a second phase of the goodwill impairment test ("Step 2") was performed specific to this business. Under Step 2, the fair values of all assets and liabilities were estimated, including tangible assets, existing technology, customer lists, and trademarks for the purpose of deriving an estimate of the implied fair value of goodwill. The implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of impairment. Assumptions used in measuring the value of these assets and liabilities included the discount rates, royalty rates, and attrition rates used in valuing the intangible assets. Upon completion of the annual test, the ADP AdvancedMD reporting unit was determined to be impaired. ADP AdvancedMD is currently reported in our Employer Services segment.
There were no accumulated goodwill impairments as of the beginning of fiscal 2013.
Components of intangible assets, net, are as follows:
|
| | | | | | | | |
June 30, | | 2013 | | 2012 |
| | | | |
Intangible assets: | | | | |
Software and software licenses | | $ | 1,511.1 |
| | $ | 1,410.9 |
|
Customer contracts and lists | | 848.9 |
| | 832.7 |
|
Other intangibles | | 241.7 |
| | 241.6 |
|
| | 2,601.7 |
| | 2,485.2 |
|
Less accumulated amortization: | | |
| | |
|
Software and software licenses | | (1,239.5 | ) | | (1,145.8 | ) |
Customer contracts and lists | | (534.3 | ) | | (479.1 | ) |
Other intangibles | | (184.7 | ) | | (172.0 | ) |
| | (1,958.5 | ) | | (1,796.9 | ) |
Intangible assets, net | | $ | 643.2 |
| | $ | 688.3 |
|
Other intangibles consist primarily of purchased rights, covenants, patents, and trademarks (acquired directly or through acquisitions). All of the intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is 7 years (4 years for software and software licenses, 10 years for customer contracts and lists, and 7 years for other intangibles). Amortization of intangible assets was $167.1 million, $172.8 million, and $168.3 million for fiscal 2013, 2012, and 2011, respectively.
Estimated future amortization expenses of the Company's existing intangible assets are as follows:
|
| | | |
| Amount |
Twelve months ending June 30, 2014 | $ | 157.3 |
|
Twelve months ending June 30, 2015 | $ | 128.0 |
|
Twelve months ending June 30, 2016 | $ | 89.8 |
|
Twelve months ending June 30, 2017 | $ | 67.5 |
|
Twelve months ending June 30, 2018 | $ | 43.5 |
|
