Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2013

Goodwill and Other Intangible Assets

6. Goodwill and Other Intangible Assets

Goodwill

The company tests goodwill for impairment on an annual basis during the second quarter. The company’s reporting units are its operating segments, which subsequent to the change in the company’s organizational model during the first quarter of 2013 are discussed below. 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 ongoing performance of the company’s operating units, updating the impairment testing during the first quarter of 2013 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 merger with Nalco resulted in the addition of $4.5 billion of goodwill. Subsequent performance of the reporting units acquired through the Nalco merger 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 working capital changes or other reasons that did not proportionately increase fair value.

Effective in the first quarter of 2013, the company changed its reportable segments due to a change in its underlying organizational model designed to support the business following the Nalco merger and to facilitate global growth. The company did not operate under the realigned reportable segment structure prior to 2013. The company’s new segment structure will focus on global businesses, with its ten operating units, which are also operating segments, aggregated into four reportable segments as follows:

· Global Industrial consists of the Global Water, Global Food & Beverage, Global Paper and Global Textile Care operating units.

· Global Institutional consists of the Global Institutional, Global Specialty and Global Healthcare operating units.

· Global Energy consists of the Global Energy operating unit.

· Other consists of the Global Pest Elimination and Equipment Care operating units.

Based on the changes in the company’s organizational model, the company has preliminarily updated its goodwill allocation both for March 31, 2013, as well as December 31, 2012. Reported goodwill amounts by reportable segment remain subject to change as the company finalizes its underlying allocation procedures. The company expects to finalize its procedures in the second quarter of 2013. No impairments were noted in connection with the preliminary goodwill allocation procedures performed.

The changes in the carrying amount of goodwill for each of the company’s reportable segments during the three months ended March 31, 2013 were as follows:

	Global			Global			Global
(millions)	Industrial			Institutional			Energy			Other			Total
Goodwill as of December 31, 2012	$	2,750.0		$	725.0		$	2,325.3		$	120.2		$	5,920.5
Current year business acquisitions(a)	33.3			—			—			—			33.3
Effect of foreign currency translation	(21.2		)	(5.5		)	(17.7		)	(0.9		)	(45.3		)
Goodwill as of March 31, 2013	$	2,762.1		$	719.5		$	2,307.6		$	119.3		$	5,908.5

(a) For 2013, none of the goodwill related to businesses acquired is expected to be tax deductible.

Other Intangible Assets

As part of the Nalco merger, the company added the “Nalco” trade name as an indefinite life intangible asset. The $1.2 billion carrying value of this asset is tested for impairment on an annual basis during the second quarter. There has been no impairment of the Nalco trade name intangible asset since it was acquired.

The company’s other intangible assets subject to amortization primarily include customer relationships, trademarks, patents and other technology. 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, 2013 and 2012 was $60.5 million and $59.3 million, respectively. As of March 31, 2013, future estimated expense related to amortizable other identifiable intangible assets is expected to be:

(millions)

2013 (Remainder: nine-month period)	$	182
2014	227
2015	225
2016	220
2017	217

- 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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