Note 5 - Acquired Intangibles and Goodwill

Acquired Intangibles

The acquired intangible assets, net of accumulated amortization, were $1.1 billion and $1.2 billion at December 31, 2018 and 2017, respectively, consisting of customer relationships associated with WNRL, the North Dakota Gathering and Processing Assets and the natural gas processing and gathering operations from the Rockies Natural Gas Business Acquisition. The value for the identified customer relationships consists of cash flows expected from existing contracts and future arrangements from the existing customer base. Accumulated amortization was $156 million and $106 million at December 31, 2018 and 2017, respectively. Amortization expense of acquired intangible assets was $50 million, $46 million and $29 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, amortization expense is expected to be approximately $50 million per year through 2023.

Goodwill

Goodwill by Operating Segment (in millions)



	December 31,
	2018		2017 (a)
Terminalling and Transportation (b) (c)	$	284	$	260
Gathering and Processing (b) (c)	718		607
Wholesale (b)	49		89
Goodwill	$	1,051	$	956


(a)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.


(b)	In connection with the finalization of the purchase price allocation associated with the WNRL Merger during 2018, we reallocated goodwill amongst the segments.


(c)	Goodwill transferred to the Partnership in the 2018 Drop Down was recorded at historical cost. We recorded goodwill of $39 million and $225 million in our Terminalling and Transportation and Gathering and Processing segments, respectively, as of December 31, 2017 as a result of the 2018 Drop Down.

For 2018, we elected to perform our annual goodwill impairment assessment using a quantitative assessment process on our goodwill. As part of our quantitative goodwill impairment process, we engaged a third-party appraisal firm to assist in the determination of estimated fair value. This determination includes estimating the fair value using both the income and market approaches. The income approach requires management to estimate a number of factors, including projected future operating results, economic projections, anticipated future cash flows and discount rates. The market approach estimates fair value using comparable marketplace fair value data from within a comparable industry grouping. The determination of the fair value requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, the selection of appropriate peer group companies, control premiums appropriate for acquisitions in the industries in which we compete, the discount rates, terminal growth rates, and forecasts of revenue, operating income and capital expenditures.

We determined that no impairment charges resulted from our November 1, 2018 goodwill impairment assessments. The fair value of our five reporting units was in excess of their carrying value. There were no impairments of goodwill during the years ended December 31, 2018, 2017 and 2016.