Annual report pursuant to Section 13 and 15(d)

Goodwill and Other Intangible Assets

v3.19.3.a.u2
Goodwill and Other Intangible Assets
 12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets
15. Goodwill and Other Intangible Assets:
The changes in the carrying amount of goodwill for the years ended December 31, 2019 and 2018 is summarized as follows:
 
 
Refining Services
 
Catalysts
 
Performance Materials
 
Performance
Chemicals
 
Total
Balance as of December 31, 2017
 
$
311,892

 
$
79,441

 
$
313,131

 
$
601,492

 
$
1,305,956

Goodwill recognized
 
—

 
—

 
649

 
—

 
649

Goodwill adjustments(1)
 
—

 
—

 
(34,811
)
 
—

 
(34,811
)
Foreign exchange impact and other
 
—

 
(1,682
)
 
(4,022
)
 
(11,161
)
 
(16,865
)
Balance as of December 31, 2018
 
$
311,892

 
$
77,759

 
$
274,947

 
$
590,331

 
$
1,254,929

Foreign exchange impact
 
—

 
852

 
972

 
3,052

 
4,876

Balance as of December 31, 2019
 
$
311,892

 
$
78,611

 
$
275,919

 
$
593,383

 
$
1,259,805

 
 
 
 
 
 
 
 
 
 
 

 
(1) 
Represents the measurement period adjustments on the net assets acquired as part of the Acquisition (see Note 7 to these consolidated financial statements for further information regarding the Acquisition).
The Company completed its annual goodwill impairment assessments as of October 1, 2019 and 2018. 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. For each of the October 1, 2019 and 2018 assessments, the Company identified four reporting units, which align with the Company’s operating segments.
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, 2019 and 2018, the fair values of each of the Company’s reporting units exceeded their respective carrying values and therefore, the second step of the two-step goodwill impairment test was not required.
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, 2019 and 2018. As part of the October 1, 2019 test, the Company recognized an impairment charge of $1,600 related to one of its Performance Materials segment in-process research and development intangible assets upon the conclusion that the associated project was no longer viable. The fair values of the Company’s indefinite-lived trade names and trademarks were in excess of their carrying amounts as of the respective testing dates, and as such, there was no further impairment of the Company’s indefinite-lived intangible assets for the years ended December 31, 2019 and 2018.
Gross carrying amounts and accumulated amortization for intangible assets other than goodwill are as follows:
 
December 31, 2019
 
December 31, 2018
 
Gross
Carrying
Amount
Accumulated
Amortization
Impairment Charge
Net
Balance
 
Gross
Carrying
Amount
Accumulated
Amortization
Net
Balance
Technical know-how
$
212,067

$
(43,459
)
$
—

$
168,608

 
$
211,067

$
(32,112
)
$
178,955

Customer relationships
362,478

(128,126
)
—

234,352

 
361,150

(95,399
)
265,751

Contracts
16,200

(15,258
)
—

942

 
19,800

(13,139
)
6,661

Trademarks
36,779

(8,972
)
—

27,807

 
36,657

(6,451
)
30,206

Permits
9,100

(9,100
)
—

—

 
9,100

(7,432
)
1,668

Total definite-lived intangible assets
636,624

(204,915
)
—

431,709

 
637,774

(154,533
)
483,241

Indefinite-lived trade names
158,477

—

—

158,477

 
157,813

—

157,813

Indefinite-lived trademarks
80,999

—

—

80,999

 
80,582

—

80,582

In-process research and development
6,800

—

(1,600
)
5,200

 
6,800

—

6,800

Total intangible assets
$
882,900

$
(204,915
)
$
(1,600
)
$
676,385

 
$
882,969

$
(154,533
)
$
728,436

 
 
 
 
 
 
 
 
 

The Company amortizes technical know-how over periods that range from eleven years to twenty years, customer relationships over periods that range from seven years to fifteen years, trademarks over periods that range from eleven years to fifteen years, contracts over periods that range from two years to sixteen years, and permits over five years. In-process research and development intangible assets are considered indefinite-lived until such time as the associated projects are completed, at which time amortization commences on the assets, or abandoned, which results in the impairment of the assets.
Amortization expense related to technical know-how, contracts and permits is included in cost of goods sold in the consolidated statements of income and was $15,891, $17,569 and $20,579 for the years ended December 31, 2019, 2018 and 2017, respectively. Amortization expense related to customer relationships and trademarks is included in other operating expense, net in the consolidated statements of income and was $34,553, $35,025 and $32,010 for the years ended December 31, 2019, 2018 and 2017, respectively.
Estimated future aggregate amortization expense of intangible assets is as follows:
Year 
 
Amount 
2020
 
$
46,809

2021
 
45,867

2022
 
45,867

2023
 
41,963

2024
 
40,011

Thereafter
 
211,192

Total estimated future aggregate amortization expense
 
$
431,709