Goodwill and Other Intangible Assets

9 Months Ended

Oct. 01, 2011

Goodwill and Other Intangible Assets [Abstract]

Note 4 — Goodwill and Other Intangible Assets

The Merger was accounted for using the acquisition method of accounting. The total purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values. The excess of the cost of the Merger over the fair value of the assets acquired and liabilities assumed resulted in goodwill. Total goodwill was approximately $557.3 million and $566.4 million as of October 1, 2011 and January 1, 2011, respectively.

The Company did not recognize any impairment losses of its goodwill during any of the periods presented. However, if events or circumstances indicate that goodwill might be impaired, the Company will test goodwill at interim dates. Throughout 2011, the Company’s results of operations have deteriorated as compared to management’s projections for the year. Through the second quarter of 2011, management believed that the declines experienced during the first half of the year were primarily related to the impact of the reduction to the energy tax credit, a weakened economic environment and unfavorable weather conditions, all of which can impact the demand for exterior building products. Management believed that some portion of these conditions were temporary in nature. During the third quarter, the weaker economic conditions and lower results of operations persisted, resulting in management changing its outlook and lowering its forecast used for its discounted cash flow analysis. In addition, Parent granted stock options in September 2011 to its newly appointed President and Chief Executive Officer at an exercise price of $5 per share based on a determination of fair market value by the board of directors of Parent, and also modified certain other outstanding options to an exercise price of $5 per share. As a result of the lower management projections for operating results and the calculated lower per share equity value, the Company believes that it has an indicator of impairment and performed interim impairment testing as of September 3, 2011. The Company completed the first step of its goodwill impairment testing with the assistance of an independent valuation firm and has determined that the fair value of its reporting unit is lower than its carrying value by approximately $70 million. The Company is in the process of determining the fair value of its identified tangible and intangible assets and liabilities with the assistance of the same independent valuation firm for purposes of determining the implied fair value of its goodwill and any resulting goodwill impairment. As of the date of the filing of this Form 10-Q, the Company has not finalized its review of this impairment analysis due to the limited time period from the first indication of potential impairment to the date of this filing and the complexities involved in estimating the fair value of certain assets and liabilities. Accounting guidance provides that in circumstances in which step two of the impairment analysis has not been completed, a company should recognize an estimated impairment charge to the extent that a company determines that it is probable that an impairment loss has occurred and such impairment loss can be reasonably estimated using the guidance of accounting for contingencies. Given that the second step of the valuation analysis has not been completed and the complexities involved in such analysis, management cannot reasonably estimate the amount of an impairment charge, but has concluded that an impairment loss is probable. During the fourth quarter, the Company intends to complete the valuation work and the estimates of fair value necessary to complete the second step of the impairment analysis and to record the resulting impairment charge, if any. Any goodwill impairment charge will be a non-cash item and will not affect the calculation of the borrowing base in the Company’s credit agreement.

The impact of foreign currency translation decreased the carrying value of goodwill by $9.1 million for the nine months ended October 1, 2011. None of the Company’s goodwill is deductible for income tax purposes.

In May 2011, the Company completed its acquisition of a supply center located in Evansville, Indiana. As a result, the Company recorded an additional customer base intangible asset of approximately $0.6 million and a non-compete agreement of less than $0.1 million, both of which will be amortized.

The Company’s other intangible assets consist of the following (in thousands):


	October 1, 2011								January 1, 2011
	Average								Average
	Amortization						Net		Amortization						Net
	Period				Accumulated		Carrying		Period				Accumulated		Carrying
	(In Years)		Cost		Amortization		Value		(In Years)		Cost		Amortization		Value
Amortized customer bases		13	$	328,367	$	24,825	$	303,542		13	$	330,915	$	5,453	$	325,462
Amortized non-compete agreements		3		10		1		9				—		—		—

Total amortized intangible assets				328,377		24,826		303,551				330,915		5,453		325,462
Non-amortized trade names(1)				328,382		—		328,382				405,552		—		405,552

Total intangible assets			$	656,759	$	24,826	$	631,933			$	736,467	$	5,453	$	731,014


(1)		Balance at October 1, 2011 reflects an impairment charge of $72.2 million recorded during the third quarter of 2011.

The Company’s non-amortized intangible assets consist of the Alside^®, Revere^®, Gentek^®, Preservation^® and Alpine trade names and are tested for impairment at least annually at the beginning of the fourth quarter. In addition, the Company tests such assets for impairment on a more frequent basis if there are indications of potential impairment. During the third quarter of 2011, as indicated previously, due to the weaker economic conditions and lower projections for results of operations, management lowered its forecast. Because of the lower projections, the Company believed potential indicators of impairment existed for the non-amortized trade names and completed an interim test of the fair value with the assistance of an independent valuation firm. The Company determined that the fair value determined by the income approach of certain non-amortized trade names was lower than the carrying value. Accordingly, the Company recorded an impairment charge of $72.2 million during the third quarter of 2011 associated with its non-amortized trade names.

Finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense related to intangible assets was approximately $6.5 million and $0.7 million for the quarters ended October 1, 2011 and October 2, 2010, respectively. Amortization expense related to intangible assets was approximately $19.7 million and $2.1 million for the nine months ended October 1, 2011 and October 2, 2010, respectively. The foreign currency translation impact on accumulated amortization of intangibles was approximately $0.3 million for the quarter ended October 1, 2011. Amortization expense is expected to be approximately $6.5 million for the remainder of fiscal 2011. Amortization expense is estimated to be $25.9 million per year for fiscal years 2012, 2013, 2014 and 2015.

- 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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