Annual report pursuant to Section 13 and 15(d)

Goodwill and Other Intangible Assets

v3.8.0.1
Goodwill and Other Intangible Assets
 12 Months Ended
Dec. 31, 2017
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets
13. Goodwill and Other Intangible Assets:
The changes in the carrying amount of goodwill for the years ended December 31, 2017 and 2016 is summarized as follows:
 
 
Performance
Materials &
Chemicals
 
Environmental
Catalysts &
Services
 
Total 
Balance as of January 1, 2016
 
$
—

 
$
311,892

 
$
311,892

Goodwill recognized
 
876,844

 
81,683

 
958,527

Foreign exchange impact
 
(24,338
)
 
(4,652
)
 
(28,990
)
Balance as of December 31, 2016
 
$
852,506

 
$
388,923

 
$
1,241,429

Goodwill recognized
 
37,584

 
—

 
37,584

Foreign exchange impact
 
24,533

 
2,410

 
26,943

Balance as of December 31, 2017
 
$
914,623

 
$
391,333

 
$
1,305,956

 
 
 
 
 
 
 

The Company completed its annual goodwill impairment assessments as of October 1, 2017 and 2016. For the annual assessments, the Company bypassed the option to perform the qualitative assessment and proceeded directly to performing the first step of the two-step goodwill impairment test for each of its reporting units. As a result of the Business Combination, for the October 1, 2017 and 2016 assessments, the Company identified four reporting units, two in each of its operating segments (PM&C and EC&S).
The Company determined the fair value of its reporting units using a split between a market approach and an income, or discounted cash flow, approach. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Estimating the fair value of a reporting unit requires various assumptions including the use of projections of future cash flows and discount rates that reflect the risks associated with achieving those cash flows. The key assumptions used in estimating the fair value were the operating margin growth rates, revenue growth rates from implementation of strategic plans, the weighted average cost of capital, the perpetual growth rate, and the estimated earnings market multiples of each reporting unit. The market value was estimated using publicly traded comparable company values by applying their most recent annual EBITDA multiples to the reporting unit’s trailing twelve months EBITDA. The income approach value was estimated using a discounted cash flow approach. The assumptions about future cash flows and growth rates are based on management’s assessment of a number of factors including the reporting unit’s recent performance against budget as well as management’s ability to execute on planned future strategic initiatives. Discount rate assumptions are based on an assessment of the risk inherent in those future cash flows.
As of October 1, 2017 and 2016, the fair values of each of the Company’s reporting units (with the exception of one in 2016) substantially exceeded their respective carrying values and therefore, the second step of the two-step goodwill impairment test was not required. For the Company’s performance chemicals reporting unit within its PM&C segment, the result of the annual goodwill impairment test as of October 1, 2016 indicated that the fair value of the reporting unit was in excess of its carrying amount by 10%. Actual sales trends for the reporting unit were lower than originally forecasted due to unfavorable foreign exchange as well as lower volumes in certain product groups, particularly in the base silicate, pulp and paper, and drilling markets. The Company believes the performance chemicals reporting unit remains well positioned over the long term with respect to its entire portfolio of products; however, a deterioration in the macroeconomic environment could adversely affect the fair value or carrying amount of this reporting unit. The amount of goodwill associated with this reporting unit was $577,667 as of the October 1, 2016 testing date.
In addition to the annual goodwill impairment assessment, the Company also performed the annual impairment test over its other indefinite-lived intangible assets as of October 1, 2017 and 2016. As a result of the prior year test, the Company determined that the trade names related to its performance chemicals reporting unit within the PM&C segment and its catalysts reporting unit within the EC&S segment were impaired as of October 1, 2016. The impaired intangibles related to those identified as part of the Business Combination. The fair value of the respective trade names was determined using the relief-from-royalty method based on the discounted cash flows used in the goodwill impairment test. Slower sales growth rates for both reporting units led to the recognition of the impairment charges. Based on the testing performed, the Company recorded non-cash impairment charges of $5,350 related to trade names within the performance chemicals reporting unit and $1,523 related to trade names within the catalysts reporting unit. The impairment charges are included in the other operating expense, net line item of the Company’s consolidated statement of operations for the year ended December 31, 2016. There was no impairment of the Company’s indefinite-lived intangible assets noted for the year ended December 31, 2017 as a result of the annual impairment test. For the Company’s performance chemicals reporting unit within its PM&C segment, the result of the annual impairment test as of October 1, 2017 indicated that the fair value of the intangible assets over corporate tradenames and product tradenames were slightly in excess of the carrying amounts, 2% and 3%, respectively, due to the impairment taken in the previous year.
Gross carrying amounts and accumulated amortization for intangible assets other than goodwill are as follows:
 
December 31, 2017
 
December 31, 2016
 
Gross
Carrying
Amount
Accumulated
Amortization
Foreign
Exchange
Impact 
Net
Balance
 
Gross
Carrying
Amount
Accumulated
Amortization
Impairment Charge
Foreign Exchange Impact
Net
Balance
Technical know-how
$
214,290

$
(21,138
)
$
(1,691
)
$
191,461

 
$
214,290

$
(10,029
)
$
—

$
(7,855
)
$
196,406

Customer relationships
368,000

(63,860
)
(1,979
)
302,161

 
368,000

(31,199
)
—

(11,064
)
325,737

Contracts
19,800

(9,205
)
—

10,595

 
19,800

(3,658
)
—

—

16,142

Trademarks
35,400

(3,911
)
(198
)
31,291

 
35,400

(1,573
)
—

(567
)
33,260

Permits
9,100

(5,612
)
—

3,488

 
9,100

(3,792
)
—

—

5,308

Total definite-lived intangible assets
646,590

(103,726
)
(3,868
)
538,996

 
646,590

(50,251
)
—

(19,486
)
576,853

Indefinite-lived trade names
159,027

—

(968
)
158,059

 
165,900

—

(6,873
)
(5,105
)
153,922

Indefinite-lived trademarks
82,900

—

(611
)
82,289

 
82,900

—

—

(3,902
)
78,998

In-process research and development
6,800

—

—

6,800

 
6,800

—

—

—

6,800

Total intangible assets
$
895,317

$
(103,726
)
$
(5,447
)
$
786,144

 
$
902,190

$
(50,251
)
$
(6,873
)
$
(28,493
)
$
816,573

 
 

 

 

 

 
 

 

 

 
 

The Company amortizes technical know-how over periods that range from fourteen to twenty years, customer relationships over periods that range from seven to fifteen years, trademarks over a fifteen year period, contracts over periods that range from two to sixteen years, and permits over five years.
Amortization of intangibles included in cost of goods sold on the consolidated statements of operations was $20,579, $13,573 and $3,605 for the years ended December 31, 2017, 2016 and 2015, respectively. Amortization of intangibles included in other operating expense, net on the consolidated statements of operations was $32,010, $25,263 and $6,605 for the years ended December 31, 2017, 2016 and 2015, respectively.
Estimated future aggregate amortization expense of intangible assets is as follows:
Year 
 
Amount 
2018
 
$
51,883

2019
 
50,914

2020
 
47,363

2021
 
46,421

2022
 
46,354

Thereafter
 
296,061

Total estimated future aggregate amortization expense
 
$
538,996