Goodwill And Related Intangible Assets

9 Months Ended

Sep. 30, 2013

5. GOODWILL AND RELATED INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2013 are as follows (in thousands):


Balance as of December 31, 2012	$	359,863
Impairment		(21,040	)
Acquired goodwill		2,466
Working capital / acquisition adjustments		252
Foreign currency translation		(96	)
Balance as of September 30, 2013	$	341,445

The goodwill balances as of September 30, 2013 and December 31, 2012 are net of accumulated impairment losses of $150,965,000 and $129,925,000, respectively.

The Company accounts for goodwill and intangibles in accordance with paragraph 35-30 of Subtopic 350-20, Goodwill, of the Financial Accounting Standard Board's Accounting Standards Codification. This standard prohibits the amortization of goodwill and intangible assets with indefinite useful lives. The statement requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives are amortized over their estimated useful lives. Paragraph 35-30 of Subtopic 350-20 further states that goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

During the third quarter of 2013, we significantly revised our 2013 forecast to reflect lower revenue and operating margin expectations for the Company. As a result, we concluded there was an indicator of impairment requiring an interim impairment test for four of our reporting units.

Step one of the 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 WACC used during the interim impairment test ranged from 12.9% to 13.4%. 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 U.S. structures starts and housing starts was utilized to determine the projected revenue growth of future periods from non-residential industrial, and residential-related markets, respectively.

During our interim impairment test, we determined that one reporting unit, the Company's sole business which serves European industrial markets, had a carrying value in excess of the 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 unit was less than its carrying value by $21,040,000 as of September 30, 2013, for which an impairment charge has been recorded.

The Company identified one reporting unit with a carrying value in excess of fair value in step one of the interim goodwill impairment test which resulted in a goodwill impairment charge as described above. Another reporting unit would have failed step one if the Company used a WACC of 14.7% instead of 12.9%, reduced earnings multiples to a factor of 8.32 instead of 10.57, or reduced the compounded annual revenue growth rate to 2% instead of 4%.

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 decreases, 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):


		September 30, 2013				December 31, 2012
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated	Estimated
		Amount		Amortization		Amount		Amortization	Life
Indefinite-lived intangible assets:
Trademarks	$	45,649	$	–	$	48,774	$	–	indefinite
Finite-lived intangible assets:
Trademarks		4,034		1,312		2,771		1,085	2 to 15 years
Unpatented technology		24,690		6,533		24,427		5,204	5 to 20 years
Customer relationships		54,120		27,889		53,043		24,687	5 to 16 years
Non-compete agreements		1,937		1,362		3,207		2,598	4 to 10 years
Backlog		1,330		1,330		1,330		1,219	0.5 to 2 years
		86,111		38,426		84,778		34,793
Total acquired intangible assets	$	131,760	$	38,426	$	133,552	$	34,793

The Company also recognized impairment charges related to trademark intangible assets for the quarter ended September 30, 2013. The impairment charges related to the trademarks were recognized as a result of the Company's interim 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. In addition, the Company recognized amortization expense related to the acquired intangible assets.

The following table summarizes the impairment charges and acquired intangible asset amortization expense for the three and nine months ended September 30 (in thousands):


		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2013		2012		2013		2012
Impairment charges	$	2,454	$	–	$	2,454	$	–
Amortization expense	$	1,622	$	1,606	$	5,018	$	5,116

Amortization expense related to acquired intangible assets for the remainder of fiscal 2013 and the next five years thereafter is estimated as follows (in thousands):


2013	$	1,525
2014	$	5,742
2015	$	5,606
2016	$	5,271
2017	$	4,894
2018	$	4,329

- 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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