ADP 2013 Annual Report Download - page 62

During the fourth quarter of fiscal 2013, the Company recorded an impairment charge of $42.7 million related to the ADP AdvancedMD
reporting unit. The goodwill impairment was due to a decrease in the estimated fair value of the business resulting from a decline in the sales
growth and profitability projections of the business.
The remeasurement of goodwill is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed using
Company-specific information. The Company determined the fair value utilizing the income approach and the market approach. Under the
income approach, the Company calculated the fair value based on the present value of the estimated cash flows. Cash flow projections were
based on management's estimates of revenue growth rates and net operating income margins, taking into consideration market and industry
conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the risk, size premium, and business specific
characteristics related to the business's ability to execute on the projected cash flows. Under the market approach, the Company evaluated the
fair value based on market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating and
investment characteristics as the reporting unit. The unobservable inputs used to measure the fair value included projected revenue growth rates,
profitability projections, working capital assumptions, the weighted average cost of capital, the determination of appropriate market comparison
companies, and terminal growth rates.
Because the annual impairment test indicated that ADP AdvancedMD's carrying value exceeded its estimated fair value, a second phase of the
goodwill impairment test ("Step 2") was performed specific to this business. Under Step 2, the fair values of all assets and liabilities were
estimated, including tangible assets, existing technology, customer lists, and trademarks for the purpose of deriving an estimate of the implied
fair value of goodwill. The implied fair value of goodwill was then compared to the recorded goodwill to determine the amount of impairment.
Assumptions used in measuring the value of these assets and liabilities included the discount rates, royalty rates, and attrition rates used in
valuing the intangible assets. Upon completion of the annual test, the ADP AdvancedMD reporting unit was determined to be impaired. ADP
AdvancedMD is currently reported in our Employer Services segment.
There were no accumulated goodwill impairments as of the beginning of fiscal 2013.
Components of intangible assets, net, are as follows:
Other intangibles consist primarily of purchased rights, covenants, patents, and trademarks (acquired directly or through acquisitions). All of the
intangible assets have finite lives and, as such, are subject to amortization. The weighted average remaining useful life of the intangible assets is
7 years ( 4 years for software and software licenses, 10 years for customer contracts and lists, and 7 years
for other intangibles). Amortization of
intangible assets was $167.1 million , $172.8 million , and $168.3 million for fiscal 2013 , 2012 , and 2011 , respectively.
54
June 30,
2013 2012
Intangible assets:
Software and software licenses
$
1,511.1
$
1,410.9
Customer contracts and lists
848.9
832.7
Other intangibles
241.7
241.6
2,601.7
2,485.2
Less accumulated amortization:
Software and software licenses
(1,239.5
)
(1,145.8
)
Customer contracts and lists
(534.3
)
(479.1
)
Other intangibles
(184.7
)
(172.0
)
(1,958.5
)
(1,796.9
)
Intangible assets, net
$
643.2
$
688.3