Intangible assets and goodwill

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]


A.	Intangible assets

Intangible assets are comprised of the following:



		December 31, 2016
(Millions of dollars)	Weighted Amortizable Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Customer relationships	15	$	2,378	$	(934	)	$	1,444
Intellectual property	11	1,496		(706		)	790
Other	14	192		(77		)	115
Total finite-lived intangible assets	14	$	4,066	$	(1,717	)	$	2,349

		December 31, 2015
	Weighted Amortizable Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net
Customer relationships	15	$	2,489	$	(809	)	$	1,680
Intellectual property	11	1,660		(626		)	1,034
Other	12	174		(67		)	107
Total finite-lived intangible assets	14	$	4,323	$	(1,502	)	$	2,821

During 2015, we acquired finite-lived intangible assets of $82 million due to the purchase of Rail Product Solutions, Inc. See Note 24 for details on this acquisition.

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.

Gross customer relationship intangibles of $96 million and related accumulated amortization of $27 million as well as gross intellectual property intangibles of $111 million and related accumulated amortization of $48 million from the Resource Industries segment were impaired during 2016. The fair value of these intangibles was determined to be insignificant based on an income approach using expected cash flows. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. The total impairment of $132 million was a result of restructuring activities and is included in Other operating (income) expense in Statement 1. See Note 25 for information on restructuring costs.

Amortization expense related to intangible assets was $326 million, $337 million and $365 million for 2016, 2015 and 2014, respectively.

As of December 31, 2016, amortization expense related to intangible assets is expected to be:



(Millions of dollars)
2017		2018		2019		2020		2021		Thereafter
$	313	$	308	$	303	$	292	$	275	$	858


B.	Goodwill

Our annual impairment tests completed in the fourth quarter of 2016 indicated the fair value of each reporting unit was substantially above its respective carrying value, including goodwill, with the exception of our Surface Mining & Technology reporting unit.

The Surface Mining & Technology reporting unit, which primarily serves the mining industry, is a part of our Resource Industries segment. The goodwill assigned to this reporting unit is largely from our acquisition of Bucyrus International, Inc. in 2011. Its product portfolio includes large mining trucks, electric rope shovels, draglines, hydraulic shovels and related parts. In addition to equipment, Surface Mining & Technology also develops and sells technology products and services to provide customer fleet management, equipment management analytics and autonomous machine capabilities. The annual impairment test completed in the fourth quarter of 2016 indicated that the fair value of Surface Mining & Technology was below its carrying value requiring the second step of the goodwill impairment test process. The fair value of Surface Mining & Technology was determined primarily using an income approach based on a discounted ten year cash flow. We assigned the fair value to Surface Mining & Technology’s assets and liabilities using various valuation techniques that required assumptions about royalty rates, dealer attrition, technological obsolescence and discount rates. The resulting implied fair value of goodwill was below the carrying value. Accordingly, we recognized a goodwill impairment charge of $595 million, which resulted in goodwill of $629 million remaining for Surface Mining & Technology as of October 1, 2016. The fair value determination is categorized as Level 3 in the fair value hierarchy due to its use of internal projections and unobservable measurement inputs. There was a $17 million tax benefit associated with this impairment charge. The mining industry has experienced significant weakness for several years as a result of low commodity prices. While we continue to expect the industry will improve, we believe the pace of the improvement will be slower and cash flows and profitability will be lower than previously forecasted. We believe the slow pace of improvement will in part be due to a large amount of equipment currently idled, particularly large mining trucks, some of which will be redeployed as end-user demand increases. In addition, we do not expect a dramatic increase in commodity prices, dampening the rate of growth in mining production and demand for our products. To reflect the gradual nature of the anticipated improvement, we used a ten year cash flow forecast period for the reporting unit rather than our typical five year forecast period.

There were no goodwill impairments during 2015 or 2014.

During 2015, we acquired net assets with related goodwill aggregating $133 million primarily related to the purchases of Rail Product Solutions, Inc. ($53 million) and RDS Manufacturing, Inc. ($59 million). See Note 24 for details on these acquisitions.

As discussed in Note 23, effective January 1, 2016, we revised our reportable segments in line with the changes to our organization structure. As a result of these changes, $118 million of goodwill was reassigned to Energy & Transportation from All Other segments.

The changes in carrying amount of goodwill by reportable segment for the years ended December 31, 2016 and 2015 were as follows:



(Millions of dollars)	December 31, 2015			Acquisitions ¹		Impairment Loss			Other Adjustments ²			December 31, 2016
Construction Industries
Goodwill	$	285		$	—	$	—		$	11		$	296
Impairment	(22		)	—		—			—			(22		)
Net goodwill	263			—		—			11			274
Resource Industries
Goodwill	4,145			—		—			(35		)	4,110
Impairment	(580		)	—		(595		)	—			(1,175		)
Net goodwill	3,565			—		(595		)	(35		)	2,935
Energy & Transportation
Goodwill	2,738			37		—			(19		)	2,756
All Other ³
Goodwill	49			—		—			6			55
Consolidated total
Goodwill	7,217			37		—			(37		)	7,217
Impairment	(602		)	—		(595		)	—			(1,197		)
Net goodwill	$	6,615		$	37	$	(595	)	$	(37	)	$	6,020

	December 31, 2014			Acquisitions ¹		Impairment Loss			Other Adjustments ²			December 31, 2015
Construction Industries
Goodwill	$	297		$	—	$	—		$	(12	)	$	285
Impairment	(22		)	—		—			—			(22		)
Net goodwill	275			—		—			(12		)	263
Resource Industries
Goodwill	4,287			—		—			(142		)	4,145
Impairment	(580		)	—		—			—			(580		)
Net goodwill	3,707			—		—			(142		)	3,565
Energy & Transportation
Goodwill	2,660			133		—			(55		)	2,738
All Other ³
Goodwill	52			—		—			(3		)	49
Consolidated total
Goodwill	7,296			133		—			(212		)	7,217
Impairment	(602		)	—		—			—			(602		)
Net goodwill	$	6,694		$	133	$	—		$	(212	)	$	6,615


¹	See Note 24 for additional information.


²	Other adjustments are comprised primarily of foreign currency translation.


³	Includes All Other operating segments (See Note 23).

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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