Intangible Assets and Goodwill

Intangible Assets

Intangible assets consist of the following:



	Trade Names			Software			Customer Relationships			Other			Total
	(In millions)
December 31, 2014
Cost	$	34.2		$	60.1		$	20.0		$	26.2		$	140.5
Accumulated amortization	(14.0		)	(55.3		)	(3.7		)	(9.6		)	(82.6		)
Intangible assets, net	$	20.2		$	4.8		$	16.3		$	16.6		$	57.9
December 31, 2013
Cost	$	34.3		$	58.5		$	20.4		$	26.3		$	139.5
Accumulated amortization	(9.2		)	(53.3		)	(2.1		)	(6.3		)	(70.9		)
Intangible assets, net	$	25.1		$	5.2		$	18.3		$	20.0		$	68.6

For purposes of long-lived asset impairment assessments, we have generally determined our asset groups to be at the level of each brand as this is the lowest level for which identifiable cash flows are available and are largely independent of the cash flows of other assets. Each reporting period, we review our long-lived assets and associated asset groups to determine if there is a triggering event which would require that we perform an impairment test.

2014 Intangible Asset Analysis

As a part of our annual goodwill impairment test for our Storage Solutions and Mobile Security reporting units, we also tested for the impairment of long-lived assets, including intangible assets with the asset groups included in our Mobile Security and Storage Solutions reporting units. In performing these tests, we compared the carrying values of these asset groups with their estimated undiscounted future cash flows and determined that the undiscounted cash flows expected to be generated by the asset groups significantly exceeded their carrying values resulting in no impairment. During the first and third quarters of 2014, as noted below under our 2014 goodwill analysis discussion, we performed interim goodwill impairment testing for our Storage Solutions business due to lower than anticipated results. We determined these factors to be an event that warranted interim tests as to whether our intangible assets associated with the Storage Solutions business were impaired. Based on our impairment analysis performed in the first and third quarters of 2014, we concluded that we did not have an impairment of our intangible assets in the Storage Solutions asset group at those times.

2013 Intangible Asset Analysis

As a part of our annual goodwill impairment test for our Storage Solutions and Mobile Security reporting units (as further discussed below), we also tested for impairment the long-lived assets, including intangible assets, within the asset groups included in our Mobile Security and Storage Solutions reporting units. In performing these tests, we compared the carrying values of these asset groups with their estimated undiscounted future cash flows and determined that the undiscounted cash flows expected to be generated by the asset groups exceeded their carrying values resulting in no impairment. There were no interim triggering events that occurred during 2013 that warranted an impairment test to be performed on our long-lived assets (including intangible assets) other than goodwill.

As of December 31, 2014, we had $56.3 million of definite-lived intangible assets subject to amortization and $1.7 million of indefinite-lived intangible assets not subject to amortization. While we believe that the current carrying value of these assets is recoverable, different assumptions regarding future performance of our businesses could result in significant impairment losses.

Amortization expense from continuing operations for intangible assets consisted of the following:



	Years Ended December 31,
	2014		2013		2012
	(In millions)
Amortization expense	$	12.9	$	13.2	$	23.9

Based on the intangible assets in service as of December 31, 2014, estimated amortization expense for each of the next five years ending December 31 is as follows:



	2015		2016		2017		2018		2019
	(In millions)
Amortization expense	$	12.1	$	9.9	$	8.7	$	6.6	$	6.2

Goodwill

The following table presents the changes in goodwill allocated to our reportable segments:



	TSS			CSA			Total
	(In millions)
Balance as of December 31, 2012:
Goodwill	$	201.3		$	49.4		$	250.7
Accumulated impairment losses	(127.8		)	(49.4		)	(177.2		)
	73.5			—			73.5

Nexsan purchase price adjustment	(1.6		)	—			(1.6		)
Foreign currency translation	0.2			—			0.2
Balance as of December 31, 2013:
Goodwill	199.9			49.4			249.3
Accumulated impairment losses	(127.8		)	(49.4		)	(177.2		)
	72.1			—			72.1

Goodwill impairment	(35.4		)	—			(35.4		)
Foreign currency translation	(0.6		)	—			(0.6		)
Balance as of December 31, 2014:
Goodwill	199.3			49.4			248.7
Accumulated impairment losses	(163.2		)	(49.4		)	(212.6		)
	$	36.1		$	—		$	36.1

See Note 4 - Acquisitions for information on goodwill acquired in the Nexsan acquisition during 2012.

We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each year or if an event occurs or circumstances change that would warrant impairment testing during an interim period. Our reporting units for goodwill are the Mobile Security reporting unit and the Storage Solutions reporting unit, both of which are within our TSS reportable segment. We do not have any goodwill associated with our CSA segment.

2014 Goodwill Analysis

During the first and then again in the third quarter of 2014, we adjusted our internal forecast for our Storage Solutions reporting unit due to lower than anticipated results. We considered these factors to be an event that warranted an interim test as to whether goodwill was impaired in each of these periods. The first quarter test resulted in no impairment of goodwill as the estimated fair value of the reporting unit exceeded its carrying value. In performing Step 1 of the third quarter test, it was determined that the carrying value of our Storage Solutions reporting unit exceeded its estimated fair value. Accordingly, we performed a Step 2 goodwill impairment test which compared the implied value of the goodwill associated with Storage Solutions to the carrying value of such goodwill. Based on this analysis, the carrying value of the Storage Solutions goodwill exceeded its implied value by $35.4 million and, consequently, we recorded an impairment charge of that amount in the Consolidated Statements of Operations. After the impairment charge, the remaining balance of goodwill associated with our Storage Solutions Reporting Unit was $28.1 million as of December 31, 2014.

In determining the estimated fair value of the reporting unit, we used the income approach, a valuation technique under which we estimate future cash flows using the reporting unit's financial forecasts. Our expected cash flows are affected by various significant assumptions, including the discount rate, revenue, gross margin and EBITA (Earnings Before Interest Taxes and Amortization) expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The assumptions included utilized a discount rate of 16.5 percent and a terminal growth rate of 3.0 percent. Because our Storage Solutions business has not yet been able to achieve its anticipated results, we increased our discount rate by 2.0 percent over the estimated market discount rate of 14.5 percent.

During the fourth quarter of 2014, we performed our annual impairment testing of goodwill for our Mobile Security and Storage Solutions reporting units. In performing Step 1 of these tests, we compared the estimated fair value of these reporting units to the carrying value. These impairment tests resulted in no fourth quarter impairment as the estimated fair value of each reporting unit exceeded the carrying value in Step 1 by 8.2 percent and 107.4 percent for the Storage Solutions and Mobile Security reporting units, respectively.

In determining the estimated fair value of the reporting units for our annual test performed in the fourth quarter of 2014, we used the income approach, a valuation technique under which we estimate future cash flows using the reporting unit's financial forecasts. Our expected cash flows are affected by various significant assumptions, including the discount rate, revenue, gross margin and EBITA (Earnings Before Interest Taxes and Amortization) expectations and the terminal value growth rate. Our analysis utilized discounted forecasted cash flows over a 10 year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for expected future cash flows. The assumptions included utilized a discount rate of 16.5 percent and a terminal growth rate of 3.0 percent for each reporting unit.

2013 Goodwill Analysis

During the fourth quarter of 2013, we performed our annual impairment testing of goodwill for our Mobile Security and Storage Solutions reporting units. In performing Step 1 of these tests, we compared the estimated fair value of these reporting units to their carrying value. These impairment tests resulted in no impairment of goodwill as the estimated fair value of each reporting unit exceeded the carrying value in Step 1 of the impairment tests by 25.7 percent and 34.2 percent, for the Storage Solutions and Mobile Security reporting units, respectively. There were no triggering events that occurred during 2013 that warranted an interim goodwill impairment test to be performed.

In determining the estimated fair value of the reporting units, we used the income approach, a valuation technique under which we estimate future cash flows using the reporting unit's financial forecasts and the market approach, a valuation technique that provides an estimate of the value of the reporting unit based on a comparison to other similar businesses. Our expected cash flows are affected by various significant assumptions, including projected revenue, gross margin and expense expectations, terminal growth rate and a discount rate. Our analyses utilized discounted forecasted cash flows of a ten year period with an estimation of residual growth rates thereafter. We use our business plans and projections as the basis for these cash flow assumptions. The analysis utilized discount rates of 13.5 percent and 15.5 percent depending on the reporting unit and a terminal growth rate of 3.0 percent.