Intangible Assets and Goodwill

9 Months Ended

Sep. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible assets consist of the following:



(In millions)	Trade Names			Software			Customer Relationships			Other			Total
September 30, 2015
Cost	$	14.9		$	2.0		$	—		$	2.3		$	19.2
Accumulated amortization	(4.2		)	(2.0		)	—			(2.3		)	(8.5		)
Intangible assets, net	$	10.7		$	—		$	—		$	—		$	10.7
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

Amortization expense for intangible assets consisted of the following:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2015		2014		2015		2014
Amortization expense	$	3.0	$	3.2	$	9.4	$	9.6

Estimated amortization expense for the remainder of 2015 and each of the next four years is as follows:



(In millions)	2015 (Remainder)		2016		2017		2018		2019
Amortization expense⁽¹⁾	$	0.2	$	0.9	$	0.9	$	0.9	$	0.9

⁽¹⁾The estimated amortization expense excludes amortization on intellectual property for license agreements with TDK Corporation (TDK) as the license agreements will terminate during the fourth quarter of 2015. See Note 17 - Subsequent Events for further information on the TDK agreement.

During the third quarter of 2015, management and the Board of Directors have engaged in a detailed strategic and financial assessment of the Company. As a result of this assessment, we significantly revised our previous business strategy by adjusting our product portfolio to a smaller product offering as well as changing our investment philosophy such that the investment in operating expenses will be significantly reduced. Because of our strategy change, smaller product portfolio and reduced future investment, we revised our forecasts, which we determined to be a triggering event for impairment testing. This required the assessment of the recoverability of the long-lived assets (including definite-lived intangible assets).

We compared the carrying value of our asset groups with their estimated undiscounted future cash flows and determined that the carrying value of certain asset groups exceeded the undiscounted cash flows expected to be generated by the asset group. For those asset groups, we then compared the carrying value of the asset group to its estimated fair value to determine the amount by which our long-lived assets (primarily intangible assets) with the asset group were impaired. As a result of these analyses, we recorded an impairment charge of $37.6 million in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015.

In determining the estimated fair value of the asset groups, we used the income approach, a valuation technique under which we estimate future cash flows using the asset group'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 years 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 discount rates ranging from 15.5 to 16.5 percent and terminal growth rates ranging from zero to 3.0 percent.

Goodwill

2015

The goodwill balance was $36.1 million as of December 31, 2014. The goodwill is solely contained within our Storage and Security Solutions reporting units. We test the carrying amount of a reporting unit's goodwill for impairment on an annual basis during the fourth quarter of each year and during an interim period if an event occurs or circumstances change that would warrant impairment testing. During the third quarter of 2015, management and the Board of Directors have engaged in an assessment of the Storage and Security Solutions businesses of the Company. As a result of this assessment, we significantly revised our previous business strategy by adjusting our product portfolio to a smaller product offering as well as changing our investment philosophy associated with these businesses such that the investment in operating expenses will be significantly reduced. Because of our strategy change, smaller product portfolio and reduced future investment, we revised our forecasts, which we determined to be a triggering event requiring us to review our goodwill related to Storage and Security Solutions for impairment.

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. 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 years 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 discount rates ranging from 15.5 to 16.5 percent and terminal growth rates ranging from zero to 3.0 percent.

As a result of this assessment, it was determined that the carrying value of our Storage and Security Solutions reporting units 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 and Security Solutions to the carrying value of such goodwill. Based on this analysis, the carrying value of the Storage and Security Solutions goodwill exceeded its implied value by $36.1 million and, consequently, we recorded an impairment charge of that amount in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015. After the impairment charge, we do not have any remaining goodwill on our balance sheet as of September 30, 2015.

2014

For our Storage Solutions reporting unit, our actual results for the three months ended September 30, 2014 were lower than planned. Because of our lower than anticipated results for Storage Solutions, we revised our forecast, which we determined to be a triggering event requiring us to review our goodwill related to Storage Solutions for impairment.

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 years 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 had 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.

As a result of this assessment, 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 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2014.

- 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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