Note 3 – Goodwill

Goodwill is not amortized, but is subject to annual impairment reviews, or more frequent reviews if events or circumstances indicate there may be impairment. Goodwill is evaluated for possible impairment by comparing the fair value of a reporting unit to its carrying value, including the goodwill assigned to that reporting unit.

During the third quarter of 2017, the Company performed its required annual impairment tests of goodwill. The results of the impairment tests indicated that there was no impairment of goodwill. The fair value of the LTC reporting unit exceeded its carrying value by a narrow margin of approximately 1%. During 2018, the LTC reporting unit has continued to experience challenges that have impacted management’s ability to grow the business at the rate that was originally estimated when the Company made the acquisition of Omnicare, Inc. and when the prior year annual goodwill impairment test was performed. These challenges include lower client retention rates, lower occupancy rates in skilled nursing facilities, the deteriorating financial health of numerous skilled nursing facility customers, and continued facility reimbursement pressures. In June 2018, LTC management submitted their initial budget for 2019 and updated their 2018 annual forecast which showed a deterioration in the financial results for the remainder of 2018 and in 2019, which also caused management to update their 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, an interim goodwill impairment test was performed as of June 30, 2018. The results of the 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. 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, higher risk-free interest rates and lower market multiples of the peer group companies contributed to the amount of the goodwill impairment charge. As of June 30, 2018, the remaining goodwill balance in the LTC reporting unit after recording the goodwill impairment is approximately $2.7 billion. The Company also performed an impairment test of the intangible assets of the LTC reporting unit and none were impaired as of June 30, 2018.

On January 2, 2018, the Company sold RxCrossroads (“RxC”) to McKesson Corporation for $725 million, at which time the remaining goodwill of this reporting unit was removed from the condensed consolidated balance sheet.

Below is a summary of the changes in the carrying value of goodwill by segment for the six months ended June 30, 2018:


	Pharmacy
In millions	Services		Retail/LTC		Total
Balance, December 31, 2017	$	21,819	$	16,632	$	38,451
Acquisitions		67		35		102
Foreign currency translation adjustments		—		(14)		(14)
Divestiture of RxCrossroads subsidiary		—		(398)		(398)
Impairment		—		(3,921)		(3,921)
Balance, June 30, 2018	$	21,886	$	12,334	$	34,220