Intangible Assets and Goodwill
The Company accounts for acquisitions using purchase accounting with the results of operations for each acquiree included in the Company’s consolidated financial statements for the period subsequent to the date of acquisition. The pro forma effects of the acquisitions completed in 2013, 2012, and 2011 were not significant individually or in the aggregate. The Company did not have any significant acquisitions during the years ended December 31, 2013, 2012 and 2011.
Intangible Assets
Amortized intangible assets were comprised of the following:
|
| | | | | | | | | | | | | | | |
| 2013 | | 2012 |
December 31, | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
Intangible assets: | | | | | | | |
Completed technology | $ | 662 |
| | $ | 639 |
| | $ | 657 |
| | $ | 632 |
|
Patents | 276 |
| | 276 |
| | 276 |
| | 276 |
|
Customer-related | 203 |
| | 144 |
| | 201 |
| | 125 |
|
Licensed technology | 17 |
| | 16 |
| | 23 |
| | 19 |
|
Other intangibles | 96 |
| | 92 |
| | 94 |
| | 90 |
|
| $ | 1,254 |
| | $ | 1,167 |
| | $ | 1,251 |
| | $ | 1,142 |
|
Amortization expense on intangible assets, which is included within Other charges in the consolidated statements of operations, was $26 million, $29 million and $200 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, future amortization expense is estimated to be $24 million in 2014, $19 million in 2015, $17 million in 2016, $13 million in 2017 and $6 million in 2018.
Amortized intangible assets, excluding goodwill, by segment are as follows:
|
| | | | | | | | | | | | | | | |
| 2013 | | 2012 |
December 31, | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
Government | $ | 55 |
| | $ | 48 |
| | $ | 53 |
| | $ | 48 |
|
Enterprise | 1,199 |
| | 1,119 |
| | 1,198 |
| | 1,094 |
|
| $ | 1,254 |
| | $ | 1,167 |
| | $ | 1,251 |
| | $ | 1,142 |
|
Goodwill
The following table displays a rollforward of the carrying amount of goodwill by segment from January 1, 2012 to December 31, 2013:
|
| | | | | | | | | | | |
| Government | | Enterprise | | Total |
Balance as of January 1, 2012 | | | | | |
Aggregate goodwill acquired | $ | 350 |
| | $ | 2,642 |
| | $ | 2,992 |
|
Accumulated impairment losses | — |
| | (1,564 | ) | | (1,564 | ) |
Goodwill, net of impairment losses | 350 |
| | 1,078 |
| | 1,428 |
|
Goodwill acquired | — |
| | 83 |
| | 83 |
|
Goodwill divested | (1 | ) | | — |
| | (1 | ) |
| | | | | |
Balance as of December 31, 2012 | | | | | |
Aggregate goodwill acquired/disposed | 349 |
| | 2,725 |
| | 3,074 |
|
Accumulated impairment losses | — |
| | (1,564 | ) | | (1,564 | ) |
Goodwill, net of impairment losses | 349 |
| | 1,161 |
| | 1,510 |
|
Purchase accounting tax adjustments | — |
| | (2 | ) | | (2 | ) |
Foreign currency | — |
| | 1 |
| | 1 |
|
| | | | | |
Balance as of December 31, 2013 | | | | | |
Aggregate goodwill acquired | 349 |
| | 2,724 |
| | 3,073 |
|
Accumulated impairment losses | — |
| | (1,564 | ) | | (1,564 | ) |
Goodwill, net of impairment losses | $ | 349 |
| | $ | 1,160 |
| | $ | 1,509 |
|
The Company conducts its annual assessment of goodwill for impairment in the fourth quarter of each year. The goodwill impairment assessment is performed at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment. The Company has determined that the Government segment and Enterprise segment each meet the definition of a reporting unit.
The goodwill impairment test for fiscal 2013 was performed using a two step goodwill impairment analysis. In step one, the fair value of each reporting unit is compared to its book value. Management must apply judgment in determining the estimated fair value of these reporting units. Fair value is determined using a combination of present value techniques and quoted market prices of comparable businesses. If the fair value of the reporting units its book value, goodwill is not deemed to be impaired for that reporting unit, and no further testing would be necessary. If the fair value of the reporting unit is less than its book value, the Company performs step two. Step two uses the calculated fair value of the reporting unit to perform a hypothetical purchase price allocation to the fair value of the assets and liabilities of the reporting unit. The difference between the fair value of the reporting unit calculated in Step One and the fair value of the underlying assets and liabilities of the reporting unit is the implied fair value of the reporting unit's goodwill. A charge is recorded in the financial statements if the carrying value of the reporting unit's goodwill is greater than its implied fair value.
The Company weighted the valuation of its reporting units at 50% based on the income approach and 50% based on the market-based approach. The Company believes that this weighting is appropriate because it is the Company's view that value indications under the selected methods are equally reliable and reflective of the value of the reporting units.
Based on the results of the 2013 annual assessment of the recoverability of goodwill, the fair values of both reporting units exceeded their book values, indicating that there was no impairment of goodwill.
The Company performed a qualitative assessment to determine whether it was more-likely-than-not that the fair value of each reporting unit was less than its carrying amount for fiscal year 2012. In performing this qualitative assessment the Company assessed relevant events and circumstances including macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in share price, and entity-specific events. In addition, the Company considered the fair value derived for each reporting unit in conjunction with the 2010 goodwill impairment test which included a full step one fair value analysis similar to the valuation discussed above. The Company compared this prior fair value against the current carrying value of each reporting unit noting fair value continued to significantly exceed carrying value for both reporting units. The Company performed a sensitivity analysis on the fair value determined for each reporting unit in conjunction with the 2010 goodwill impairment test for changes in significant assumptions including the weighted average cost of capital used in the income approach and changes in expected cash flows. For fiscal 2012, these changes in assumptions and estimated cash flows resulted in an increase in fair value for the Government reporting unit and a slight decrease in fair value for the Enterprise reporting unit. In spite of this small decrease in estimated fair value of the Enterprise reporting unit, the reporting unit's fair value significantly exceeded its carrying value. As such, the Company concluded it was more-likely-than-not that the fair value of each reporting unit exceeded its carrying value. Therefore, the two-step goodwill impairment test was not required.
