Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 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 in a business combination. The company’s reporting units are its operating segments.

During the second quarter of 2015, the company completed its annual test for goodwill impairment. In order to refresh the relative fair value of all ten of its reporting units, the company elected to bypass the qualitative assessment and perform a quantitative test. The two-step quantitative process involved comparing the estimated fair value of each reporting unit to the reporting unit’s carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not to be impaired, and the second step of the impairment test is unnecessary. If the carrying amount of the reporting unit exceeds its fair value, the second step of the goodwill impairment test would be performed to measure the amount of impairment loss to be recorded, if any.

The company’s goodwill impairment assessment for 2015 indicated the fair value of each of its reporting units exceeded its carrying amount by a significant margin. If circumstances change significantly, the company would also test a reporting unit’s goodwill for impairment during interim periods between its annual tests. Updating the impairment assessment during the third quarter of 2015 was not deemed necessary. There has been no impairment of goodwill since the adoption of FASB guidance for goodwill and other intangibles on January 1, 2002.

The changes in the carrying amount of goodwill for each of the company’s reportable segments during the nine months ended September 30, 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)	82.5			6.1			—			0.9			89.5
Prior year business combinations(b)	0.7			—			—			—			0.7
Dispositions	(0.4		)	—			—			—			(0.4		)
Reclassifications(c)	(23.7		)	2.9			20.8			—			—
Effect of foreign currency translation	(120.5		)	(31.9		)	(149.6		)	(5.6		)	(307.6		)

Goodwill as of September 30, 2015	$	2,580.8		$	668.3		$	3,133.3		$	116.8		$	6,499.2

(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

As part of the Nalco merger, the company added the “Nalco” trade name as an indefinite life intangible asset. During the second quarter of 2015, using the qualitative assessment method, the company completed its annual test for indefinite life intangible asset impairment. Based on this testing, no adjustment to the $1.2 billion carrying value of this asset was necessary. Updating the impairment assessment during the third 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 third quarter ended September 30, 2015 and 2014 was $72.6 million and $75.2 million, respectively. Total amortization expense related to other intangible assets during the first nine months of 2015 and 2014 was $218.6 million and $230.0 million, respectively.

As of September 30, 2015, future estimated expense related to amortizable other identifiable intangible assets is expected to be:

(millions)

2015 (Remainder: three-month period)	$	73
2016	287
2017	285
2018	279
2019	267
2020	263

- 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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