GOODWILL AND INTANGIBLE ASSETS |
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GOODWILL AND INTANGIBLE ASSETS |
GOODWILL AND INTANGIBLE ASSETS
The following table indicates the allocation of goodwill by reportable segment (in millions):
2016 Goodwill Activity:
The goodwill acquired in the Supply Chain & Freight segment is related to our December 2016 acquisition of Maze 1 Limited ("Marken"). See note 7 for further discussion of this acquisition.
The purchase price allocation for acquired companies can be modified for up to one year from the date of acquisition.
2015 Goodwill Activity:
The goodwill acquired in the U.S. Domestic Package segment was related to our August 2015 acquisition of Coyote Logistics Midco, Inc ("Coyote"). The goodwill acquired in the Supply Chain & Freight segment was related to our March 2015 acquisition of Poltraf Sp. z.o.o. ("Poltraf"), our May 2015 acquisition of Parcel Pro, Inc. ("Parcel Pro"), our June 2015 acquisition of the Insured Parcel Services division of G4S International Logistics ("IPS") and our August 2015 acquisition of Coyote.
Goodwill Impairment
We test our goodwill for impairment annually, as of October 1st, on a reporting unit basis which we own at the testing date. Our reporting units are comprised of the U.S. Domestic Package reporting unit, the Europe, Asia, Americas and ISMEA (Indian Subcontinent, Middle East and Africa) reporting units in the International Package reporting segment and the Forwarding, Logistics, UPS Mail Innovations, UPS Freight, The UPS Store, UPS Capital, Coyote Logistics and Marken reporting units in the Supply Chain & Freight reporting segment.
In assessing our goodwill for impairment, we initially evaluate qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive and it is necessary to calculate the fair value of a reporting unit, then we utilize a two-step process to test goodwill for impairment. First, a comparison of the fair value of the applicable reporting unit with the aggregate carrying value, including goodwill, is performed. We primarily determine the fair value of our reporting units using a discounted cash flow model, and supplement this with observable valuation multiples for comparable companies, as applicable. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step includes comparing the implied fair value of the affected reporting unit’s goodwill with the carrying value of that goodwill.
In 2016, we utilized a qualitative assessment to determine that it was more likely than not that the reporting unit fair value exceeded the carrying value for our Europe, Asia, Americas, ISMEA, The UPS Store and UPS Capital reporting units. For the remaining reporting units owned at the annual goodwill impairment testing date, we utilized the two-step process to test goodwill for impairment. We did not have any goodwill impairment charges in 2016, 2015 or 2014. Cumulatively, our Supply Chain & Freight reporting segment has recorded $622 million of goodwill impairment charges, while our International and U.S. Domestic Package segments have not recorded any goodwill impairment charges.
Intangible Assets
The following is a summary of intangible assets at December 31, 2016 and 2015 (in millions):
A trade name and licenses with a carrying value of $200 and $4 million, respectively, as of December 31, 2016 are deemed to be indefinite-lived intangible assets, and therefore are not amortized. Impairment tests for indefinite-lived intangible assets are performed on an annual basis. All of our other recorded intangible assets are deemed to be finite-lived intangibles, and are thus amortized over their estimated useful lives. Impairment tests for these intangible assets are only performed when a triggering event occurs that may indicate that the carrying value of the intangible may not be recoverable. There were no impairments of any finite-lived or indefinite-lived intangible assets in 2016 or 2015.
Amortization of intangible assets was $321, $261 and $195 million during 2016, 2015 and 2014, respectively. Expected amortization of finite-lived intangible assets recorded as of December 31, 2016 for the next five years is as follows (in millions): 2017—$378; 2018—$304; 2019—$249; 2020—$186; 2021—$126. Amortization expense in future periods will be affected by business acquisitions, software development, licensing agreements, franchise rights purchases and other factors.
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