Goodwill And Related Intangible Assets

12 Months Ended

Dec. 31, 2012

5. GOODWILL AND RELATED INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill for the years ended December 31 were as follows (in thousands):


		2012			2011
Balance as of the beginning of the year	$	348,326		$	298,346
Acquired goodwill		15,011			50,526
Impairment		(4,328	)		–
Foreign currency translation		854			(546	)
Balance as of the end of the year	$	359,863		$	348,326

Goodwill is recognized net of accumulated impairment losses of $129,925,000 and $125,597,000 as of December 31, 2012 and 2011, respectively.

The Company performed its annual goodwill impairment test as of October 31, 2012, 2011, and 2010. As a result, the Company recognized goodwill impairment charges during the year ended December 31, 2012 and 2010. No impairment charges were incurred in 2011.

As of the October 31, 2012 impairment test, the Company identified ten reporting units in total. The Company consolidated two of the reporting units from the prior year due to restructuring activities amongst two units that consolidated operating activities.

Step one of the goodwill impairment test consists of comparing the fair value of a reporting unit with its carrying amount including goodwill. The fair value of each reporting unit was determined using two valuation techniques: an income approach and a market approach. Each valuation approach relies on significant assumptions including a weighted average cost of capital (WACC). The WACC is calculated based upon the capital structure of nine market participants in the Company's peer group. The following table summarizes the WACC used during the goodwill impairment tests performed during 2012 and 2011:


Date of Impairment Test	WACC
October 31, 2012	10.7% to 13.1%
October 31, 2011	10.8% to 12.5%

Other assumptions used to calculate a fair value for each reporting unit include projected revenue growth, forecasted cash flows, and earnings multiples based on the market value of the Company and nine market participants in a peer group. A third-party forecast of housing starts was utilized to estimate revenue growth for future periods.

During our 2012 and 2010 goodwill impairment tests, we identified reporting units with carrying values in excess of fair value due to decreased revenue projections. Therefore, the Company initiated step two of the goodwill impairment test which involved calculating the implied fair value of goodwill by allocating the fair value of the reporting unit to the fair value of its assets and liabilities other than goodwill, calculating an implied fair value of goodwill, and comparing the implied fair value to the carrying amount of goodwill. As a result of step two of the goodwill impairment test, the Company estimated that the implied fair value of goodwill for the reporting units was less than their carrying values by $4,328,000 and $66,589,000 for the years ended December 31, 2012 and 2010, respectively, which has been recorded as impairment charges. No goodwill impairment charges were recorded in 2011.

The Company identified one reporting unit with a carrying value in excess of fair value in step one of the 2012 goodwill impairment test. Another reporting unit would have failed step one if the Company used a WACC of 12.6%, reduced earnings multiples by a factor of 1.8, or reduced the compounded annual revenue growth rate by 100 basis points.

The Company will continue to monitor impairment indicators and financial results in future periods. If cash flows change or if the market value of the Company's stock does not increase, there may be additional impairment charges. Impairment charges could be based on factors such as the Company's stock price, forecasted cash flows, assumptions used, control premiums, or other variables.

Acquired Intangible Assets

Acquired intangible assets consist of the following (in thousands):


		December 31, 2012				December 31, 2011
		Gross				Gross
		Carrying	Accumulated			Carrying	Accumulated		Estimated
		Amount	Amortization			Amount	Amortization		Useful Life
Indefinite-lived intangible assets:
Trademarks	$	48,774	$	–	$	46,760	$	–	Indefinite
Finite-lived intangible assets:
Trademarks		2,771		1,085		1,968		921	2 to 15 Years
Unpatented technology		24,427		5,204		22,117		3,577	5 to 20 Years
Customer relationships		53,043		24,687		48,276		20,512	5 to 16 Years
Non-compete agreements		3,207		2,598		2,857		2,303	4 to 10 Years
Backlog		1,330		1,219		1,200		600	1 to 2 Years
		84,778		34,793		76,418		27,913
Total acquired intangible assets	$	133,552	$	34,793	$	123,178	$	27,913

The Company recognized an impairment charge related to a trademark intangible asset for the year ended December 31, 2012, as well as, for trademark and customer relationship intangible assets for the year ended December 31, 2010. The impairment charges related to the trademarks were recognized as a result of the Company's impairment test of indefinite-lived intangibles. The fair values of the impaired trademarks were determined using an income approach consisting of the relief-from-royalty method. The impairment charge related to the customer relationship asset was recognized as a result of the estimated future undiscounted cash flows of the asset being less than its carrying value. The fair value of the impaired customer relationship was determined using an income approach consisting of the excess earnings method. In addition, the Company recognized amortization expense related to the acquired intangible assets.

The following table summarizes the impairment charges and acquired intangibles amortization expense for the years ended December 31 (in thousands):


		2012		2011		2010
Impairment charges	$	300	$	–	$	10,375
Amortization expense	$	6,671	$	6,309	$	5,167

Amortization expense related to acquired intangible assets for the next five years ended December 31 is estimated as follows (in thousands):


2013	$	6,606
2014	$	5,498
2015	$	5,342
2016	$	5,321
2017	$	5,320

- 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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