Goodwill and Other Intangible Assets

The Company accounts for acquired goodwill in accordance with Accounting Standards Codification ("ASC") 805, "Business Combinations" and ASC 350, “Intangibles - Goodwill and Other” (“ASC 350”), which involves judgment with respect to the determination of the valuation of the acquired assets and liabilities assumed in order to determine the final amount of goodwill recorded in a purchase. Under ASC 350, goodwill is not amortized. Instead, it is evaluated for impairment on an annual basis, or more frequently when an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying value, including, for example, a significant adverse change in the business climate. The Company has set the annual evaluation date as of the first day of its fiscal fourth quarter. The reporting units evaluated for goodwill impairment have been determined to be the same as the Company's operating segments. With the exception of the Custom & Engineered Solutions ("CES") reporting unit, all of the Company's reporting units have goodwill and, therefore, are required to be evaluated for goodwill impairment.

When applicable, the Company utilizes a combination of a discounted cash flow (“DCF”) approach and an EBITDA multiple approach in order to value the Company's reporting units required to be tested for impairment. These non-recurring fair value measurements are primarily determined using unobservable inputs. Accordingly, these fair value measurements are classified within Level 3 of the fair value hierarchy.

The DCF approach requires that the Company forecast future cash flows of the reporting units, and discount those cash flow streams based upon a weighted average cost of capital (“WACC”) that is derived, in part, from comparable companies within similar industries. The DCF calculations also include a terminal value calculation that is based upon an expected long-term growth rate for the applicable reporting unit. The Company believes that its procedures for estimating DCF, including the terminal valuation, are reasonable and consistent with market conditions at the time of estimation.

The EBITDA multiple approach requires that the Company estimate certain valuation multiples of EBITDA derived from comparable companies, and apply those derived EBITDA multiples to the applicable reporting unit's estimated EBITDA for selected EBITDA measurement periods.

During the second quarter of 2014, the Company changed the composition of its reporting units to exclude the audio/video ("AV") subsidiaries from the Technology Solutions reporting unit due to the Chief Operating Decision Maker's decision to operate each of the AV subsidiaries as separate operating segments, resulting in the creation of three new reporting units for goodwill impairment analysis. In addition, due to the continued decline in operating results of the AV subsidiaries, the Company concluded in the second quarter of 2014 that indicators of potential long-lived asset and goodwill impairment were present. Based on these considerations, the Company performed the following:

Evaluation of the realizability of long-lived assets - In accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), the Company evaluates the realizability of long-lived assets, which primarily consists of property and equipment and definite lived intangible assets (the “ASC 360 Long-Lived Assets”), when events or business conditions warrant it, as well as whenever an interim goodwill impairment test is required under ASC 350. ASC 350 requires that the ASC 360 impairment test be completed, and any ASC 360 impairment be recorded, prior to performing the goodwill impairment test. Due to the continued decline in operating results of the AV subsidiaries, the Company performed an interim test for the impairment of long-lived assets.

The evaluation of the impairment of long-lived assets, other than goodwill, is based on expectations of non-discounted future cash flows compared to the carrying value of the long-lived asset groups. If the sum of the expected non-discounted future cash flows is less than the carrying amount of the ASC 360 Long-Lived Assets, the Company would recognize an impairment loss if the carrying amount of the asset group exceeds its fair value. The Company's cash flow estimates are based upon future projected cash flows determined by the Company and, if appropriate, include assumed proceeds upon sale of the asset group at the end of the cash flow period. The Company believes that its procedures for estimating gross future cash flows, including the estimated sales proceeds, are reasonable and consistent with current market conditions for each of the dates when impairment testing has been performed.

Based upon this analysis, the Company recorded an estimated long-lived asset impairment loss of approximately $76.0 million related to the AV subsidiaries, comprised of intangible assets of approximately $74.7 million and property and equipment of approximately $1.3 million, during the second quarter of 2014. The impairment loss related to intangible assets was comprised of the following:



Customer relationships	$	48.0
Trademarks	19.6
Developed technology	6.1
Other	$	1.0
	$	74.7

The Company believes that the estimate of the impairment losses is reasonable and represents its best estimate of the impairment loss. If market conditions deteriorate further for these entities, it is reasonably possible that the estimate of expected future cash flows may change in the near term, resulting in an additional impairment charge relating to property and equipment.

Evaluation of the legacy Technology Solutions reporting unit for goodwill impairment - as a result of the impairment indicators described above, the Company has estimated the fair value of the legacy Technology Solutions reporting unit based upon an EBITDA multiple approach. Based on this estimate, the estimated fair value of the legacy Technology Solutions reporting unit exceeded the carrying value of the legacy Technology Solutions reporting unit. As a result, the Company does not believe that it is more likely than not that an impairment of the legacy Technology Solutions reporting unit goodwill has occurred.

Allocated the legacy Technology Solutions goodwill to each of the AV subsidiaries - The Company estimated the fair value of each of the AV subsidiaries based upon a DCF approach, as previously described, and allocated a portion of the legacy Technology Solutions goodwill to each of the AV subsidiaries based upon their relative fair value. All prior period reportable segment information has been restated to reflect the new segment structure.

Evaluate the revised Technology Solutions reporting unit and each of the AV subsidiaries reporting units for goodwill impairment - During the second quarter of 2014, the Company prepared a “Step 1” Test that compared the estimated fair value of the AV reporting units to their carrying value utilizing a DCF approach as described previously. As the carrying value of the AV reporting units exceeded the estimated fair value, the Company performed a “Step 2” Test to measure the impairment loss by allocating the estimated fair value of the reporting units, as determined in Step 1, to the reporting units’ assets and liabilities, with the residual amount representing the implied fair value of goodwill. Since the implied fair value of goodwill was determined to be less than the carrying value, an impairment loss of approximately $4.4 million was recognized during the second quarter of 2014.

The following table presents a summary of the activity in goodwill by reporting segment for the first half of 2014:



	Dec. 31, 2013 ⁽¹⁾		Impairments / Acquisitions ⁽²⁾			June 28, 2014 ⁽¹⁾
	(Dollar amounts in millions)
Residential Ventilation:
Gross goodwill	$	156.8	$	—		$	156.8
Impairment losses	—		—			—
Net RESV goodwill	156.8		—			156.8
Technology Solutions:
Gross goodwill	80.9		—			80.9
Impairment losses	—		—			—
Net TECH goodwill	80.9		—			80.9
Display Mount Solutions:
Gross goodwill	131.4		—			131.4
Impairment losses	—		—			—
Net DMS goodwill	131.4		—			131.4
Residential Heating and Cooling (“RHC”):
Gross goodwill	—		110.6			110.6
Impairment losses	—		—			—
Net RHC goodwill	—		110.6			110.6
Audio/Video⁽³⁾:
Gross goodwill	4.4		—			4.4
Impairment losses	—		(4.4		)	(4.4		)
Net AV goodwill	4.4		(4.4		)	—
Consolidated goodwill:
Gross goodwill	373.5		110.6			484.1
Impairment losses	—		(4.4		)	(4.4		)
Net consolidated goodwill	$	373.5	$	106.2		$	479.7


(1)	The CES reporting unit did not have goodwill for any periods presented.


(2)	Acquisition adjustments recorded during the first half of 2014 for the RHC segment relate to the acquisition of Reznor. See Note B, “Acquisitions”.


(3)	Represents the combined audio/video reporting units.