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Goodwill, Other Intangibles and Property and Equipment
12 Months Ended
Dec. 31, 2019
Goodwill Other Intangibles And Property And Equipment [Abstract]  
Goodwill, Other Intangibles, and Property and Equipment

Note 18 – Goodwill, Other Intangibles and Property and Equipment

 

A.Goodwill

 

Accounting policy. Goodwill represents the excess of the cost of businesses acquired over the fair value of their net assets. The resulting goodwill is assigned to those reporting units expected to realize cash flows from the acquisition, based on those reporting units’ relative fair values. As a result, goodwill is primarily reported in the Health Services segment ($33.7 billion), the Integrated Medical segment ($10.5 billion) and, to a lesser extent, the International Markets segment ($0.4 billion).

 

The Company evaluates goodwill for impairment at least annually during the third quarter at the reporting unit level and writes it down through shareholders’ net income if impaired. Fair value of a reporting unit is generally estimated based on either a market approach or a discounted cash flow analysis using assumptions that the Company believes a hypothetical market participant would use to determine a current transaction price. The significant assumptions and estimates used in determining fair value include the discount rate and future cash flows. A discount rate is selected to correspond with each reporting unit’s weighted average cost of capital, consistent with that used for investment decisions considering the specific and detailed operating plans and strategies within that reporting unit. Projections of future cash flows for each reporting unit are consistent with our annual planning process for revenues, pharmacy costs, benefits expenses, operating expenses, taxes, capital levels and long-term growth rates.

 

Goodwill activity. Goodwill activity during 2019 and 2018 was as follows:

(In millions)

 

2019

 

2018

Balance at January 1,

$

44,505

$

6,164

Goodwill acquired, net

 

103

 

38,371

Impact of foreign currency translation

 

(6)

 

(30)

Balance at December 31,

$

44,602

$

44,505

 

 

 

 

 

 

The significant increase in goodwill during 2018 reflects the Company’s acquisition of Express Scripts as further discussed in Note 4.

 

B.Other Intangibles

 

Accounting policy. The Company’s other intangible assets primarily include purchased customer and producer relationships, provider networks and trademarks. The fair value of purchased customer relationships and the amortization method were determined as of the dates of purchase using an income approach that relies on projected future net cash flows including key assumptions for customer attrition and discount rates. The Company’s definite-lived intangible assets are amortized on an accelerated or straight-line basis, reflecting their pattern of economic benefits, over periods from one to 39 years. Management revises amortization periods if it believes there has been a change in the length of time that an intangible asset will continue to have value. Costs incurred to renew or extend the terms of these intangible assets are generally expensed as incurred.

 

The Company’s amortized intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the expected future undiscounted cash flows generated by the underlying asset group is less than the carrying amount of the asset group, the Company recognizes an impairment charge equal to the difference between the carrying value of the asset group and its estimated fair value. The Company’s indefinite-lived intangible assets are each reviewed for impairment at least annually by comparing their fair value with their carrying value. If the carrying value exceeds fair value, that excess is recognized as an impairment loss.

 

There were no material impairments in the years ended December 31, 2019, 2018 or 2017.

 

Components of other assets, including other intangibles. Other intangible assets were comprised of the following at December 31:

 

 

 

Accumulated

Net Carrying

(In millions)

 

Cost

Amortization

Value

2019

 

 

 

 

Customer relationships

$

31,184

3,319

27,865

Trade Name - Express Scripts

 

8,400

 

8,400

Other

 

383

86

297

Other intangible assets

 

39,967

3,405

36,562

Value of business acquired (reported in deferred policy acquisition costs)

 

643

122

521

Total

$

40,610

3,527

37,083

2018

 

 

 

 

Customer relationships

$

31,451

1,213

30,238

Trade Name - Express Scripts

 

8,400

 

8,400

Other

 

560

195

365

Other intangible assets

 

40,411

1,408

39,003

Value of business acquired (reported in deferred policy acquisition costs)

 

665

102

563

Total

$

41,076

1,510

39,566

The Company has indefinite-lived intangible assets totaling $8.4 billion at December 31, 2019 and 2018, largely consisting of trade names and licenses.

C. Property and Equipment

 

Accounting policy. Property and equipment is carried at cost less accumulated depreciation. Cost includes interest, real estate taxes and other costs incurred during construction when applicable. Internal-use software that is acquired, developed or modified solely to meet the Company’s internal needs, with no plan to market externally, is also included in this category. Costs directly related to acquiring, developing or modifying internal-use software are capitalized.

 

The Company calculates depreciation and amortization principally using the straight-line method generally based on the estimated useful life of each asset as follows: buildings and improvements, 10 to 40 years; purchased software, three to five years; internally developed software, three to seven years and furniture and equipment (including computer equipment), three to 10 years. Improvements to leased facilities are depreciated over the lesser of the remaining lease term or the estimated life of the improvement. The Company considers events and circumstances that would indicate the carrying value of property, equipment or capitalized software might not be recoverable. An impairment charge is recorded if the Company determines the carrying value of any of these assets is not recoverable. The Company also reviews and shortens the estimated useful lives of these assets, if necessary.

 

Components of property and equipment. Property and equipment was comprised of the following as of December 31:

 

 

 

 

Accumulated

 

Net Carrying

(In millions)

 

Cost

 

Amortization

 

Value

2019

 

 

 

 

 

 

Internal-use software

$

6,578

$

3,282

$

3,296

Other property and equipment

 

2,569

 

1,353

 

1,216

Total property and equipment

 

9,147

 

4,635

 

4,512

Property and equipment classified as Assets held for sale

 

(226)

 

(131)

 

(95)

Total property and equipment per Consolidated Balance Sheet

$

8,921

$

4,504

$

4,417

2018

 

 

 

 

 

 

Internal-use software

$

5,694

$

2,415

$

3,279

Other property and equipment

 

2,264

 

981

 

1,283

Total property and equipment

$

7,958

$

3,396

$

4,562

 

Components of depreciation and amortization. Depreciation and amortization expense was comprised of the following for the years ended December 31:

(In millions)

2019

2018

2017

Internal-use software

$

850

$

323

$

298

Other property and equipment

 

284

 

146

 

153

Value of business acquired (reported in deferred policy acquisition costs)

 

34

 

16

 

18

Other intangibles

 

2,483

 

210

 

97

Total depreciation and amortization

$

3,651

$

695

$

566

The Company estimates annual pre-tax amortization for intangible assets, including internal-use software, over the next five calendar years to be as follows:

(In millions)

Pre-tax Amortization

2020

$

2,466

2021

$

2,386

2022

$

2,061

2023

$

1,902

2024

$

1,773