Goodwill represents the excess of the acquisition cost over the fair value of Tenaris’s share of net identifiable assets acquired as part of business combinations determined mainly by independent valuations. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are
not
reversed. Goodwill is included in the Consolidated Statement of Financial Position under
Intangible assets, net.
For the purpose of impairment testing, goodwill is allocated to a subsidiary or group of subsidiaries that are expected to benefit from the business combination which generated the goodwill being tested.
| ( 2 ) | | Information systems projects |
Costs associated with maintaining computer software programs are generally recognized as an expense as incurred. However, costs directly related to the development, acquisition and implementation of information systems are recognized as intangible assets if it is probable that they have economic benefits exceeding
one
year and comply with the recognition criteria of IAS
38.
Information systems projects recognized as assets are amortized using the straight-line method over their useful lives, generally
not
exceeding a period of
3
years. Amortization charges are mainly classified as
Selling, general and administrative expenses
in the Consolidated Income Statement.
Management’s re-estimation of assets useful lives, performed in accordance with IAS
38
“Intangible Assets”, did
not
materially affect amortization expenses for
2017,
2016
and
2015.
| ( 3 ) | | Licenses, patents, trademarks and proprietary technology |
Licenses, patents, trademarks, and proprietary technology acquired in a business combination are initially recognized at fair value at the acquisition date. Licenses, patents, proprietary technology and those trademarks that have a finite useful life are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives, and does
not
exceed a period of
10
years. Amortization charges are mainly classified as
Selling, general and administrative expenses
in the Consolidated Income Statement.
The balance of acquired trademarks that have indefinite useful lives according to external appraisal amounts to
$
million at
December 31, 2017
and
2016,
included in Hydril CGU. Main factors considered in the determination of the indefinite useful lives, include the years that they have been in service and their recognition among customers in the industry.
Management’s re-estimation of assets useful lives, performed in accordance with IAS
38,
did
not
materially affect amortization expenses for
2017,
2016
and
2015.
| ( 4 ) | | Research and development |
Research expenditures as well as development costs that do
not
fulfill the criteria for capitalization are recorded as
Cost of sales
in the Consolidated Income Statement as incurred. Research and development expenditures included in
Cost of sales
for the years
2017,
2016
and
2015
totaled
$63.7
million,
$68.6
million and
$89.0
million, respectively.
In accordance with IFRS
3
"Business Combinations" and IAS
38,
Tenaris has recognized the value of customer relationships separately from goodwill attributable to the acquisition of Maverick and Hydril groups.
Customer relationships acquired in a business combination are recognized at fair value at the acquisition date, have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight line method over the expected life of approximately
14
years for Maverick and
10
years for Hydril.
In
2015
the Company reviewed the useful life of Prudential’s customer relationships, related to Maverick acquisition, and decided to reduce the remaining amortization period from
5
years to
2
years, ending
December 2017.
As of
December 2017
the residual value of Maverick’s customer relationships amount to
$193
million and the residual useful life is
3
years, while Hydril’s customer relationships is fully amortized
.
