INNOSPEC INC. Goodwill & Intangibles Disclosure
Note 7. Goodwill
The following table analyzes goodwill for 2015 and 2014.
|
(in millions) |
Fuel Specialties |
Performance Chemicals |
Octane Additives |
Total | ||||||||||||
|
At January 1, 2014 |
||||||||||||||||
|
Gross cost (1) |
$ | 141.1 | $ | 46.8 | $ | 236.5 | $ | 424.4 | ||||||||
|
Accumulated impairment losses |
0.0 | 0.0 | (236.5 | ) | (236.5 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net book amount |
141.1 | 46.8 | 0.0 | 187.9 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Exchange effect |
(0.3 | ) | (0.1 | ) | 0.0 | (0.4 | ) | |||||||||
|
Acquisitions |
88.1 | 0.0 | 0.0 | 88.1 | ||||||||||||
|
Adjustments to purchase price allocation |
0.5 | 0.0 | 0.0 | 0.5 | ||||||||||||
|
At December 31, 2014 |
||||||||||||||||
|
Gross cost (1) |
229.4 | 46.7 | 236.5 | 512.6 | ||||||||||||
|
Accumulated impairment losses |
0.0 | 0.0 | (236.5 | ) | (236.5 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net book amount |
229.4 | 46.7 | 0.0 | 276.1 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Exchange effect |
(0.2 | ) | 0.0 | 0.0 | (0.2 | ) | ||||||||||
|
Disposals |
0.0 | (7.6 | ) | 0.0 | (7.6 | ) | ||||||||||
|
Adjustments to purchase price allocation |
(0.9 | ) | 0.0 | 0.0 | (0.9 | ) | ||||||||||
|
At December 31, 2015 |
||||||||||||||||
|
Gross cost (1) |
228.3 | 39.1 | 236.5 | 503.9 | ||||||||||||
|
Accumulated impairment losses |
0.0 | 0.0 | (236.5 | ) | (236.5 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Net book amount |
$ | 228.3 | $ | 39.1 | $ | 0.0 | $ | 267.4 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Gross cost is net of $8.7 million, $0.3 million and $289.5 million of historical accumulated amortization in respect of the Fuel Specialties, Performance Chemicals and Octane Additives reporting segments, respectively. |
The Company’s reporting units, the level at which goodwill is tested for impairment, are consistent with the reportable segments: Fuel Specialties, Performance Chemicals and Octane Additives. The components in each segment (including products, markets and competitors) have similar economic characteristics and the segments, therefore, reflect the lowest level at which operations and cash flows can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
The Company assesses goodwill for impairment on at least an annual basis, initially based on a qualitative assessment to determine whether it is more likely than not that the fair value of a segment is less than the carrying amount. If a potential impairment is identified then a two-step impairment test is followed.
The Company performs its annual impairment assessment in respect of our Fuel Specialties and Performance Chemicals goodwill as at December 31, 2015. At this date we had $228.3 million and $39.1 million of goodwill relating to our Fuel Specialties and Performance Chemicals segments, respectively. Our impairment assessment concluded that there had been no impairment of goodwill in respect of those reporting segments. For the years ended December 31, 2014 and 2013 the Company performed annual impairment tests and concluded that there had been no impairment of goodwill in respect of those reporting segments at those balance sheet dates.
We believe that where appropriate the assumptions used in our impairment assessments are reasonable, but that they are judgmental, and variations in any of the assumptions may result in materially different calculations of any potential impairment charges.
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.