Goodwill, Other Intangibles, and Property and Equipment

12 Months Ended

Dec. 31, 2018

Goodwill Other Intangibles And Property And Equipment [Abstract]

Goodwill, Other Intangibles, and Property and Equipment

Note 15 – Goodwill, Other Intangibles and Property and Equipment

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, allocated to reporting units based on relative fair values, 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 ($0.3 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 market data 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, claims, operating expenses, taxes, capital levels and long-term growth rates.

Goodwill activity. Goodwill activity during 2018 and 2017 was as follows:

(In millions)		2018		2017
Balance at January 1,	$	6,164	$	5,980
Goodwill acquired, net		38,371		154
Impact of foreign currency translation		(30)		30
Balance at December 31,	$	44,505	$	6,164

The significant increase in goodwill during 2018 reflects the Company’s acquisition of Express Scripts as further discussed in Note 3.

Other Intangibles

Accounting policy. The Company’s other intangible assets 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 amortizes other intangibles on an accelerated or straight-line basis over periods from 0.3 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.

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
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
2017
Customer relationships	$	1,280	1,056	224
Other		291	170	121
Other intangible assets		1,571	1,226	345
Value of business acquired (reported in deferred policy acquisition costs)		232	86	146
Total	$	1,803	1,312	491

The significant increase reflects the intangible assets acquired from Express Scripts as discussed further in Note 3.

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
2018
Internal-use software	$	5,694	$	2,415	$	3,279
Other property and equipment
Assets recorded under capital leases⁽¹⁾		56		4		52
Other property and equipment not recorded under capital leases		2,208		977		1,231
Total other property and equipment		2,264		981		1,283
Total property and equipment	$	7,958	$	3,396	$	4,562
2017
Internal-use software	$	2,991	$	2,184	$	807
Other property and equipment
Assets recorded under capital leases⁽¹⁾		49		31		18
Other property and equipment not recorded under capital leases		1,573		835		738
Total other property and equipment		1,622		866		756
Total property and equipment	$	4,613	$	3,050	$	1,563

(1) Current capital lease agreements are for equipment and generally have a term of 48 months with the equipment expected to be returned to the lessor at termination.

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

(In millions)	2018		2017		2016
Internal-use software	$	323	$	298	$	303
Other property and equipment⁽¹⁾		146		153		158
Value of business acquired (reported in deferred policy acquisition costs)		16		18		20
Other intangibles		210		97		129
Total depreciation and amortization	$	695	$	566	$	610

(1) Other property and equipment includes amortization on assets recorded under capital leases of $9 million in 2018, $14 million in 2017 and $20 million in 2016.

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
2019	$	3,169
2020	$	2,164
2021	$	2,062
2022	$	1,844
2023	$	1,777

- Definition

Discloses 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 or 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. This element may be used as a single block of text to include the entire intangible asset disclosure including data and tables. Disclosure of long-lived, physical assets that are used in the normal conduct of business to produce goods and services and not intended for resale. Examples include land, building and production equipment. This disclosure may include property plant and equipment accounting policies and methodology, a schedule of property, plant and equipment gross, additions, deletions, transfers and other changes, depreciation, depletion and amortization expense, net, accumulated depreciation, depletion and amortization expense and useful lives, income statement disclosures, assets held for sale and public utility disclosures. This element may be used as a single block of text to include the entire PPE disclosure, including data and tables.

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