GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The Company accounts for acquired goodwill in accordance with ASC 805 and 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 CAS reporting unit and the AVC entities, all of the Company's reporting units have goodwill and, therefore, are required to be evaluated for goodwill impairment.

Generally, 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.

2014 Interim Goodwill Impairment Testing

During the second quarter of 2014, the Company changed the composition of its reporting units to exclude the AVC subsidiaries from the SCS reporting unit due to the Chief Operating Decision Maker's decision to operate each of the AVC 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 AVC subsidiaries, the Company concluded in the second quarter of 2014 that indicators of potential long-lived assets 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 AVC 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 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 a long-lived asset impairment loss of approximately $76.0 million related to the AVC 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 by class and the applicable weighted average useful lives were as follows:



			Weighted Average Useful Lives
Customer relationships	$	48.0	16.2
Trademarks	19.6		12.7
Developed technology	6.1		6.3
Other	1.0		7.9
	$	74.7	13.0

The Company believes that impairment losses were reasonable and represented 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 ("TECH") reporting unit for goodwill impairment - As a result of the impairment indicators described above, the Company estimated the fair value of the legacy TECH reporting unit based upon an EBITDA multiple approach. Based on this estimate, the estimated fair value of the legacy TECH reporting unit exceeded the carrying value of the legacy TECH reporting unit. As a result, the Company did not believe that it was more likely than not that an impairment of the legacy TECH reporting unit goodwill had occurred.


3.	Allocation of the legacy TECH goodwill to each of the AVC subsidiaries - The Company estimated the fair value of each of the AVC subsidiaries based upon a DCF approach, as previously described, and allocated a portion of the legacy SCS goodwill to each of the AVC subsidiaries based upon their relative fair value.

Evaluation of the revised SCS reporting unit and each of the AVC 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 AVC reporting units to their carrying value utilizing a DCF approach as described previously. As the carrying values of the AVC reporting units exceeded the estimated fair values, the Company performed a “Step 2” Test to measure the impairment loss by allocating the estimated fair values 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.

2014 Annual Impairment Test

For the 2014 annual impairment test for AQH and SCS, the Company estimated the fair value of each of the reporting units using a weighted average of 50% for the DCF approach and 50% for the EBITDA approach, which it determined to be the most representative allocation for the estimate of the long-term fair value of the reporting units. The AQH valuation assumed a taxable transaction while the SCS valuation assumed a non-taxable transaction, with WACC’s of 12.9% and 11.7%, respectively, and EBITDA multiples in the range of 7.0x to 7.5x and 7.5x to 9.0x, respectively, for the selected measurement periods of the latest twelve months through September 27, 2014, and forecasted 2014 and 2015. As the estimated fair values of AQH and SCS were both greater than their carrying value, no Step 2 test for goodwill impairment was required.

The Company believes that its assumptions used to estimate the fair value of AQH and SCS as of the first day of the fourth quarter were reasonable. If different assumptions were used, particularly with respect to estimating future cash flows, weighted average costs of capital, and terminal growth rates, different estimates of fair value may have resulted. The estimated fair values of the AQH and SCS reporting units would have to decrease by approximately 48% and 46%, respectively, before a potential impairment would be recognized.

The Company determined that it was appropriate to use the qualitative assessment approach for the 2014 annual goodwill impairment evaluation performed as of the first day of the fourth quarter for ERG and RCH. The estimated fair value of ERG derived in the Company's prior valuation analysis continued to be significantly in excess of the carrying value. The goodwill for RCH as of the first day of the fourth quarter represented the preliminary goodwill recorded in connection with the Company’s acquisition of Reznor (see Note 2, “Acquisitions”). Based on the qualitative analysis performed, as described above, the Company determined that it was more likely than not that the fair values of ERG and RCH were both greater than their carrying amounts as of the first day of the fourth quarter. Accordingly, the Company was not required to perform the two-step quantitative impairment test for 2014 for ERG and RCH.

The Company did not prepare updated goodwill impairment analyses as of December 31, 2014 for any reporting unit, as there were no indicators during the quarter that would have required such analysis.

2013 Goodwill Impairment Testing

For the 2013 annual impairment test for AQH, ERG and legacy TECH, the Company estimated the fair value of each of the reporting units using a weighted average of 50% for the DCF approach and 50% for the EBITDA approach, which it determined to be the most representative allocation for the estimate of the long-term fair value of the reporting units. The AQH valuation assumed a taxable transaction while the ERG and the legacy TECH valuations each assumed a non-taxable transaction, with WACC’s of 13.2%, 13.4% and 14.5%, respectively, and EBITDA multiples in the range of 7.5x to 8.0x, 6.5x to 7.5x and 7.0x to 8.5x, respectively, for the selected measurement periods of the latest twelve months through September 30, 2013, and forecasted 2013 and 2014. As the estimated fair value of AQH, ERG and legacy TECH was greater than the carrying value, no Step 2 test for goodwill impairment was required. The Company did not prepare updated goodwill impairment analyses as of December 31, 2013 for any reporting unit, as there were no indicators during the quarter that would have required such analysis.

The Company believes that its assumptions used to estimate the fair value of AQH, ERG and legacy TECH as of the first day of the fourth quarter were reasonable. If different assumptions were used, particularly with respect to estimating future cash flows, weighted average costs of capital, and terminal growth rates, different estimates of fair value may have resulted. The estimated fair values of the AQH, ERG, and legacy TECH reporting units would have to decrease by approximately 50.7%, 39.5%, and 23.8%, respectively, before a potential impairment would be recognized.

2012 Goodwill Impairment Testing

For the 2012 annual impairment test for AQH and ERG, the Company determined, based on the qualitative analysis performed , that it was more likely than not that the fair value of each of AQH and ERG was greater than their carrying amounts as of the first day of the fourth quarter. Accordingly, the Company was not required to perform the two-step impairment test as of that date with respect to these reporting units.

For the 2012 annual impairment test for legacy TECH, the Company estimated the fair value of the reporting unit using a weighted average of 50% for the DCF approach and 50% for the EBITDA approach, which it determined to be the most representative allocation for the estimate of the long-term fair value of the reporting unit. The legacy TECH valuation assumed a taxable transaction, with a WACC of 16.9%, and EBITDA multiples in the range of 7.5x to 8.5x for the selected measurement periods of the latest twelve months through September 29, 2012, and forecasted 2012 and 2013. As the estimated fair value of legacy TECH was greater than the carrying value, no Step 2 test for goodwill impairment was required.

Goodwill Activity

The following table presents a summary of the activity in goodwill by reporting segment for the years ended December 31, 2014 and 2013:



	Dec. 31, 2012 ⁽¹⁾		Acquisitions (2)		Dec. 31, 2013 ⁽¹⁾		Acquisitions and Impairments ⁽²⁾			Dec. 31, 2014 ⁽¹⁾
	(Dollar amounts in millions)
Air Quality and Home Solutions (“AQH”):
Gross goodwill	$	156.8	$	—	$	156.8	$	—		$	156.8
Impairment losses	—		—		—		—			—
Net AQH goodwill	156.8		—		156.8		—			156.8
Security and Control Solutions (“SCS”):
Gross goodwill	15.8		65.1		80.9		—			80.9
Impairment losses	—		—		—		—			—
Net SCS goodwill	15.8		65.1		80.9		—			80.9
Ergonomic and Productivity Solutions (“ERG”):
Gross goodwill	131.4		—		131.4		—			131.4
Impairment losses	—		—		—		—			—
Net ERG goodwill	131.4		—		131.4		—			131.4
Residential and Commercial HVAC (“RCH”):
Gross goodwill	—		—		—		105.2			105.2
Impairment losses	—		—		—		—			—
Net RCH goodwill	—		—		—		105.2			105.2
Audio, Video and Control Solutions ("AVC")
Gross goodwill	3.6		0.8		4.4		—			4.4
Impairment losses	—		—		—		(4.4		)	(4.4		)
Net AVC goodwill	3.6		0.8		4.4		(4.4		)	—
Consolidated goodwill:
Gross goodwill	307.6		65.9		373.5		105.2			478.7
Impairment losses	—		—		—		(4.4		)	(4.4		)
Net consolidated goodwill	$	307.6	$	65.9	$	373.5	$	100.8		$	474.3


(1)	The CAS reporting unit did not have goodwill in any period presented.


(2)	Acquisition adjustments recorded during 2014 for the RCH segment relate to the acquisition of Reznor and Phoenix. Acquisition adjustments recorded during 2013 for the SCS and AVC segments relate to the acquisition of 2GIG and Gefen Distribution, respectively. See Note 2, “Acquisitions”.

Other Intangible Assets

The table that follows presents the Company's major components of intangible assets as of December 31, 2014 and 2013:



	Gross Carrying Amount		Accumulated Amortization			Net Intangible Assets		Weighted Average Remaining Useful Lives
	(Amounts in millions, except for useful lives)
December 31, 2014
Trademarks	$	179.8	$	(34.4	)	$	145.4	16.9
Developed technology	88.1		(29.1		)	59.0		7.0
Customer relationships	562.1		(128.8		)	433.3		12.3
Others	23.5		(18.6		)	4.9		1.4
	$	853.5	$	(210.9	)	$	642.6	12.8

December 31, 2013
Trademarks	$	164.8	$	(30.7	)	$	134.1	16.5
Developed technology	78.4		(23.8		)	54.6		9.0
Customer relationships	560.9		(108.7		)	452.2		13.6
Others	23.4		(15.4		)	8.0		3.4
	$	827.5	$	(178.6	)	$	648.9	13.7

Developed technology, trademarks and customer relationships are amortized on a straight-line basis. Amortization of intangible assets charged to operations amounted to approximately $60.0 million, $51.3 million, and $44.3 million for the three years ended December 31, 2014, respectively.

As of December 31, 2014, the estimated future intangible asset amortization expense aggregated approximately $642.6 million as follows:



Year Ended December 31,	Annual Amortization Expense
	(Dollar amounts in millions)

2015	$	59.7
2016	56.0
2017	55.7
2018	55.4
2019	55.4
2020 and thereafter	360.4

Other Long-Lived Asset Impairment Charges

In addition to the 2014 non-cash long-lived asset impairment charges for intangible assets and property and equipment noted previously for the AVC entities, the Company recorded a non-cash long-lived asset impairment charge of approximately $4.3 million in 2013 related to the write-down of property and equipment in connection with the exit in the first quarter of 2014 of a product line within the AQH segment. There were no long-lived asset impairment charges recorded during 2012.