Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2015

Goodwill and Other Intangible Assets

6.Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. The company’s reporting units are aligned with its ten operating segments.

The company tests goodwill for impairment on an annual basis during the second quarter. If circumstances change significantly, the company would also test a reporting unit’s goodwill for impairment during interim periods between its annual tests. Based on the current and expected performance of the company’s operating units, updating the impairment testing during the first quarter of 2015 was not deemed necessary. There has been no impairment of goodwill since the adoption of Financial Accounting Standards Board (“FASB”) guidance for goodwill and other intangibles on January 1, 2002.

The Nalco and Champion transactions resulted in the addition of significant goodwill within the Energy, Water and Paper reporting units. Subsequent performance of these reporting units relative to projections used for the purchase price allocation of goodwill could result in an impairment if there is either underperformance by the reporting unit or if the carrying value of the reporting unit were to fluctuate significantly due to reasons that did not proportionately change fair value.

The changes in the carrying amount of goodwill for each of the company’s reportable segments during the three months ended March 31, 2015 were as follows:

	Global			Global			Global
(millions)	Industrial			Institutional			Energy			Other			Total
Goodwill as of December 31, 2014	$	2,642.2		$	691.2		$	3,262.1		$	121.5		$	6,717.0
Current year business combinations(a)	—			6.1			—			0.9			7.0
Prior year business combinations (b)	(0.7		)	—			—			—			(0.7		)
Reclassifications(c)	(23.7		)	2.9			20.8			—			—
Effect of foreign currency translation	(75.7		)	(20.3		)	(94.8		)	(3.5		)	(194.3		)
Goodwill as of March 31, 2015	$	2,542.1		$	679.9		$	3,188.1		$	118.9		$	6,529.0

(a)

For 2015, $0.9 million of the goodwill related to businesses acquired is expected to be tax deductible.

(b)

Represents purchase price allocation adjustments for 2014 acquisitions deemed preliminary as of December 31, 2014.

(c)

Represents immaterial reclassifications of beginning balances to conform to the current year presentation.

Other Intangible Assets

The value of the Nalco trade name is considered an indefinite life intangible asset, which is tested for impairment on an annual basis during the second quarter. Based on the ongoing performance of the company’s operating units, updating the impairment testing during the first quarter of 2015 was not deemed necessary. There has been no impairment of the Nalco trade name intangible asset since it was acquired.

The company’s intangible assets subject to amortization primarily include customer relationships, trademarks, patents and other technology. The fair value of identifiable intangible assets is estimated based upon discounted future cash flow projections and other acceptable valuation methods. Other intangible assets are amortized on a straight-line basis over their estimated economic lives. Total amortization expense related to other intangible assets during the first quarter ended March 31, 2015 and 2014 was $73.1 million and $78.1 million, respectively.

As of March 31, 2015, future estimated expense related to amortizable other identifiable intangible assets is expected to be:

(millions)

2015 (Remainder: nine-month period)	$	221
2016	289
2017	286
2018	281
2019	268
2020	264

- Definition

The entire disclosure for 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 (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.

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