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Goodwill and Other Intangibles Assets

12 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS

December 31 (In millions)	2013		2012

Goodwill	$	26,195	$	26,971

Other intangible assets - net
Intangible assets subject to amortization	$	1,136	$	1,287

Changes in goodwill balances follow.

	2013								2012
					Dispositions,								Dispositions,
					currency								currency
	Balance at				exchange		Balance at		Balance at				exchange		Balance at
(In millions)	January 1		Acquisitions		and other		December 31		January 1		Acquisitions		and other		December 31

CLL	$	13,454	$	3	$	65	$	13,522	$	13,475	$	-	$	(21)	$	13,454
Consumer		10,882		14		(619)		10,277		10,717		-		165		10,882
Real Estate		926		-		(184)		742		1,001		-		(75)		926
Energy Financial Services		1,562		-		(55)		1,507		1,562		-		-		1,562
GECAS		147		-		-		147		147		-		-		147
Total	$	26,971	$	17	$	(793)	$	26,195	$	26,902	$	-	$	69	$	26,971

Upon closing an acquisition, we estimate the fair values of assets and liabilities acquired and consolidate the acquisition as quickly as possible. Given the time it takes to obtain pertinent information to finalize the acquired company's balance sheet, then to adjust the acquired company's accounting policies, procedures, and books and records to our standards, it is often several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for our initial estimates to be subsequently revised.

Goodwill balances decreased $(776) million in 2013, primarily as a result of dispositions ($749 million). Our reporting units and related goodwill balances are CLL ($13,522 million), Consumer ($10,277 million), Real Estate ($742 million), Energy Financial Services ($1,507 million) and GECAS ($147 million) at December 31, 2013.

Goodwill balances increased $69 million in 2012, primarily as a result of the weaker U.S. dollar ($180 million), partially offset by dispositions ($107 million).

We test goodwill for impairment annually in the third quarter of each year using data as of July 1 of that year. The impairment test consists of two steps: in step one, the carrying value of the reporting unit is compared with its fair value; in step two, which is applied when the carrying value is more than its fair value, the amount of goodwill impairment, if any, is derived by deducting the fair value of the reporting unit's assets and liabilities from the fair value of its equity, and comparing that amount with the carrying amount of goodwill. We determined fair values for each of the reporting units using an income approach. When available and appropriate, we use comparative market multiples to corroborate discounted cash flow results. We assess the valuation methodology based upon the relevance and availability of the data at the time we perform the valuation.

Under the income approach, fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for each business. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing. We use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from 11.25% to 13.3%.

During the third quarter of 2013, we performed our annual impairment test of goodwill for all of our reporting units. Based on the results of our step one testing, the fair values of each of the reporting units exceeded their carrying values; therefore, the second step of the impairment test was not required to be performed and no goodwill impairment was recognized.

Our Real Estate reporting unit had a goodwill balance of $742 million at December 31, 2013. While the Real Estate reporting unit's book value was within the range of its fair value, we further substantiated our Real Estate goodwill balance by performing the second step analysis in which the implied fair value of goodwill exceeded its carrying value by approximately $3.7 billion. The estimated fair value of the Real Estate reporting unit is based on a number of assumptions about future business performance and investment, including loss estimates for the existing finance receivable and investment portfolio, new debt origination volume and margins, and the recent stabilization of the real estate market allowing for sales of real estate investments at normalized margins. Our assumed discount rate was 11.25% and was derived by applying a capital asset pricing model and corroborated using equity analyst research reports and implied cost of equity based on forecasted price to earnings per share multiples for similar companies. While we have seen stabilization in some markets, given the volatility and uncertainty in the current commercial real estate environment, there is uncertainty about a number of assumptions upon which the estimated fair value is based. Different loss estimates for the existing portfolio, changes in the new debt origination volume and margin assumptions, changes in the expected pace of the commercial real estate market recovery, or changes in the equity return expectation of market participants may result in changes in the estimated fair value of the Real Estate reporting unit.

Estimating the fair value of reporting units requires the use of estimates and significant judgments that are based on a number of factors including actual operating results. It is reasonably possible that the judgments and estimates described above could change in future periods.

Intangible Assets Subject to Amortization
	2013						2012
	Gross						Gross
	carrying		Accumulated				carrying		Accumulated
December 31 (In millions)	amount		amortization		Net		amount		amortization		Net


Capitalized software	$	2,200	$	(1,707)	$	493	$	2,103	$	(1,663)	$	440
Customer-related		1,173		(802)		371		1,220		(802)		418
Lease valuations		703		(498)		205		1,163		(792)		371
Trademarks		49		(36)		13		51		(32)		19
Present value of future profits(a)		574		(574)		-		530		(530)		-
Patents and Technology		106		(102)		4		106		(99)		7
All other		326		(276)		50		316		(284)		32
Total	$	5,131	$	(3,995)	$	1,136	$	5,489	$	(4,202)	$	1,287

Balances at December 31, 2013 and 2012 reflect adjustments of $322 million and $353 million, respectively, to the present value of future profits in our run-off insurance operations to reflect the effects that would have been recognized had the related unrealized investment securities holding gains and losses actually been realized.

During 2013, we recorded additions to intangible assets subject to amortization of $270 million. The components of finite-lived intangible assets acquired during 2013 and their respective weighted-average amortizable period are: $115 million – Customer-related (7.0 years); $150 million – Capitalized software (4.0 years); $3 million – Patents and Technology (5.0 years); and $2 million – Lease valuations (5.0 years).

Amortization expense related to intangible assets subject to amortization was $425 million, $447 million and $562 million for 2013, 2012 and 2011, respectively, and is recorded in operating and administrative expense on the financial statements. We estimate annual pre-tax amortization for intangible assets over the next five calendar years to be as follows: 2014 – $339 million; 2015 – $288 million; 2016 – $218 million; 2017 – $154 million; and 2018 – $100 million.

- 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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