Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Below is a summary of the changes in the carrying amount of goodwill by segment for the years ended December 31, 2019 and 2018:



In millions	Pharmacy Services			Retail/ LTC			Health Care Benefits			Total
Balance at December 31, 2017	$	21,819		$	16,632		$	—		$	38,451
Acquisitions	1,569			735			44,484			46,788
Foreign currency translation adjustments	—			(14		)	—			(14		)
Divestiture of RxCrossroads subsidiary	—			(398		)	—			(398		)
Impairments	—			(6,149		)	—			(6,149		)
Balance at December 31, 2018	23,388			10,806			44,484			78,678
Segment realignment	194			—			(194		)	—
Purchase accounting adjustments	—			—			1,071			1,071
Other	(1		)	1			—			—
Balance at December 31, 2019	$	23,581		$	10,807		$	45,361		$	79,749

Cumulative goodwill impairments were $6.1 billion at both December 31, 2019 and 2018.

The changes in the carrying amount of goodwill during the years ended December 31, 2019 and 2018 reflect the following activity:

Segment Realignment

During 2019, the Company realigned the composition of its segments to correspond with changes to its operating model and reflect how the CODM reviews information and manages the business as discussed in Note 1 ‘‘Significant Accounting Policies.’’ As a result of this realignment, the Company reallocated the goodwill balance of the Pharmacy Services and Health Care Benefits segments based on a relative fair value approach.

Aetna Acquisition

On November 28, 2018, the Company completed the Aetna Acquisition. The majority of the preliminary valuation of goodwill associated with the Aetna Acquisition was recorded in the Health Care Benefits segment. The Company also allocated a portion of such goodwill to the Retail/LTC and Pharmacy Services segments related to the fair value of identified synergies that are expected to directly benefit those segments. During 2019, the Company finalized its purchase accounting assessment and recorded the applicable measurement period adjustments, including an adjustment to the acquired goodwill. See Note 2 ‘‘Acquisitions and Divestitures’’ for further discussion regarding the Aetna Acquisition.

LTC

During 2018, the LTC reporting unit continued to experience industry-wide challenges that impacted management’s ability to grow the business at the rate that was originally estimated when the Company acquired Omnicare, Inc. (“Omnicare”) and when the 2017 annual goodwill impairment test was performed. Those challenges include lower client retention rates, lower occupancy rates in skilled nursing facilities, the deteriorating financial health of numerous skilled nursing facility customers which resulted in a number of customer bankruptcies in 2018, and continued facility reimbursement pressures. In June 2018, LTC management submitted its initial budget for 2019 and updated the 2018 annual forecast which showed a deterioration in the projected financial results for the remainder of 2018 and in 2019, which also caused management to update its long-term forecast beyond 2019. Based on these updated projections, management determined that there were indicators that the LTC reporting unit’s goodwill may be impaired and, accordingly, management performed an interim goodwill impairment test as of June 30, 2018. The results of that interim impairment test showed that the fair value of the LTC reporting unit was lower than the carrying value, resulting in a $3.9 billion pre-tax goodwill impairment charge in the second quarter of 2018. The fair value of the LTC reporting unit was determined using a combination of a discounted cash flow method and a market multiple method. In addition to the lower financial projections, changes in risk-free interest rates and lower market multiples of peer group companies contributed to the amount of the 2018 goodwill impairment charges.

During the third quarter of 2018, the Company performed its required annual impairment tests of goodwill and concluded there was no impairment of goodwill or trade names.

During the fourth quarter of 2018, the LTC reporting unit missed its forecast primarily due to operational issues and customer liquidity issues, including one significant customer bankruptcy. Additionally, LTC management submitted an updated final budget for 2019 which showed significant additional deterioration in the projected financial results for 2019 compared to the analyses performed in the second and third quarters of 2018 primarily due to continued industry and operational challenges, which also caused management to make further updates to its long-term forecast beyond 2019. The updated projections reflected continued industry wide challenges including lower occupancy rates in skilled nursing facilities, significant deterioration in the financial health of numerous skilled nursing facility customers and continued facility reimbursement pressures. Based on these updated projections, management determined that there were indicators that the LTC reporting unit’s goodwill may be further impaired and, accordingly, management performed an interim goodwill impairment test during the fourth quarter of 2018. The results of that interim impairment test showed that the fair value of the LTC reporting unit was lower than the carrying value, resulting in an additional $2.2 billion pre-tax goodwill impairment charge in the fourth quarter of 2018. In addition to the lower financial projections, lower market multiples of peer group companies also contributed to the amount of the fourth quarter 2018 goodwill impairment charge. The fair value of the LTC reporting unit was determined using a methodology consistent with the methodology described above for the analyses performed during the second and third quarters of 2018.

During the third quarter of 2019, the Company performed its required annual impairment tests of goodwill. The results of these impairment tests indicated that there was no impairment of goodwill. As of December 31, 2019, the remaining goodwill balance in the LTC reporting unit was $431 million.

RxCrossroads

During 2017, the Company began pursuing various strategic alternatives for its RxCrossroads reporting unit. In connection with this effort, the Company performed an interim goodwill impairment test in the second quarter of 2017. The results of that impairment test showed that the fair value of the RxCrossroads reporting unit was lower than the carrying value, resulting in a $135 million pre-tax goodwill impairment charge in the second quarter of 2017.

The TCJA was enacted on December 22, 2017 and reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018 (see Note 10 ‘‘Income Taxes’’). As a result, the RxCrossroads deferred income tax liabilities were reduced by $47 million and an income tax benefit of $47 million was recorded in the 2017 statement of operations. The reduction in the deferred income tax liabilities increased the carrying value of the RxCrossroads reporting unit by $47 million which triggered an additional goodwill impairment charge in the RxCrossroads reporting unit of $46 million during the fourth quarter of 2017.

On January 2, 2018, the Company sold its RxCrossroads subsidiary to McKesson Corporation for $725 million, at which time the remaining goodwill of this reporting unit was removed from the consolidated balance sheets.

Intangible Assets

The following table is a summary of the Company’s intangible assets as of December 31, 2019 and 2018:



In millions, except weighted average life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Weighted Average Life (years)
2019
Trademarks (indefinite-lived)	$	10,498	$	—		$	10,498	N/A
Customer contracts/relationships and covenants not to compete	25,447		(8,128		)	17,319		14.8
Technology	1,060		(386		)	674		3.0
Provider networks	4,200		(229		)	3,971		20.0
Value of Business Acquired	590		(63		)	527		20.0
Other	364		(232		)	132		8.1
Total	$	42,159	$	(9,038	)	$	33,121	15.1

2018
Trademarks (indefinite-lived)	$	10,498	$	—		$	10,498	N/A
Customer contracts/relationships and covenants not to compete	26,213		(6,349		)	19,864		14.8
Technology	1,060		(31		)	1,029		3.0
Provider networks	4,200		(19		)	4,181		20.0
Value of Business Acquired	590		(7		)	583		20.0
Favorable leases and other ⁽¹⁾	1,177		(808		)	369		17.1
Total	$	43,738	$	(7,214	)	$	36,524	15.3

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(1)	Upon adoption of ASU 2016-02, Leases, the Company’s favorable leases were reclassified from an intangible asset to a reduction of the right-of-use asset. Refer to Note 1 ‘‘Significant Accounting Policies’’ for additional information on the adoption of ASU 2016-02, Leases.

Amortization expense for intangible assets totaled $2.4 billion, $1.0 billion and $817 million for the years ended December 31, 2019, 2018 and 2017, respectively. The projected annual amortization expense for the Company’s intangible assets for the next five years is as follows:



In millions
2020	$	2,283
2021	2,186
2022	1,816
2023	1,786
2024	1,743