Goodwill and Other Intangible Assets

9 Months Ended

Sep. 26, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

The Company accounts for acquired goodwill in accordance with 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 assets acquired 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.

Impairment of Long-lived Assets and Goodwill

During the second quarter of 2014, the Company determined that the significant under performance of its AVC entities through the first half of the year, along with a declining earnings forecast for the remainder of 2014 and beyond, represented an indicator of impairment related to the long-lived assets of these businesses. As a result, the Company performed the first step in the long-lived assets impairment test pursuant to ASC 360, “Property, Plant and Equipment” and compared the forecasted undiscounted cash flows for these businesses to their net assets. These cash flows were insufficient to recover the carrying value of these businesses. Based on the estimated fair values of the asset groups and the long-lived assets, the Company recorded an aggregate impairment charge of approximately $80.4 million to write down the long-lived assets to their fair values. This charge was comprised of approximately $74.7 million for intangible assets, primarily trademarks, customer relationships and developed technology, approximately $4.4 million for goodwill and approximately $1.3 million for property and equipment.

As a result of certain restructuring initiatives that the Company commenced in the second quarter of 2015, the Company identified an indicator of impairment related to the long-lived assets of certain of the AVC entities due to declining operating results related to these companies. Based on review of the forecasted undiscounted cash flows over the remaining estimated useful life of the primary asset of the asset group, the Company determined that there was insufficient forecasted net positive cash flows to recover the net book value of property and equipment and such property and equipment had no material salvage value. As a result, the Company recorded an impairment charge of approximately $1.2 million to reduce the carrying value of the property and equipment to zero.

2015 Interim Goodwill Impairment Considerations

As a result of negative operating result trends for the RCH reporting unit, the Company evaluated whether such operating trends indicated that it was more likely than not that the fair value of the RCH reporting unit was below its carrying amount. Based on consideration of a number of qualitative and other factors, including the historical excess of fair value over the carrying amount of this reporting unit, as well as, consideration of the current and forecasted operating results, the Company determined that it was not currently more likely than not that the fair value of the RCH reporting unit was below its carrying amount. In order to further corroborate this assertion, the Company estimated a preliminary range of fair values of the RCH reporting unit using the income approach (discounted cash flow method) and the market approach (EBITDA multiple) with a range of preliminary assumptions. This analysis, including consideration of sensitivity of the key fair value assumptions, resulted in a range of estimated fair values that corroborated the Company’s conclusion that it was not more likely than not that the fair value of the RCH reporting unit was below its carrying amount. However, the estimated values of RCH from the analysis described above only exceeded the carrying value by approximately 20% to 30% as of September 26, 2015. Therefore, a continued negative trend of operating results or material changes to forecasted operating results could result in a future goodwill impairment charge. The Company will complete its required annual assessment of goodwill of its reporting units as of the first day of the fiscal fourth quarter and when it has completed its long-range planning process.

In addition, the Company completed a review of impairment of other long-lived assets for the asset groups within RCH and a review of the estimated remaining useful lives under ASC 360-10, "Impairment and Disposal of Long-Lived Assets" ("ASC 360-10") in the third quarter of 2015. The Company did identify, based on the revised estimated future cash flows, that a reduction of approximately 20% of the remaining useful lives of the intangible assets of RCH, which principally relate to the acquisition of Reznor in fiscal 2014, was required. The impact of this change in estimated useful lives was approximately $0.3 million of additional amortization expense in the third quarter of 2015 and represents a change in the estimated annual amortization of approximately $3.1 million. Based on the impairment analysis under ASC 360-10, no impairment was noted. The estimated cash flows of the asset groups exceeded the carrying value of long-lived assets by more than 100%.

Based on the Company’s review and consideration of other potential impairment indicators and the fact that the fair value of all other reporting units exceeded the carrying value of those reporting units by more than 100% based on the Company’s last assessment in the fourth quarter of 2014, the Company does not believe there is currently any significant risk of goodwill impairment at any other reporting units.

Goodwill Activity

The following table presents a summary of the activity in goodwill by reporting segment for the nine months of 2015:



	December 31, 2014 ⁽¹⁾			Acquisitions ⁽²⁾		September 26, 2015 ⁽¹⁾
	(Dollar amounts in millions)
Air Quality and Home Solutions ("AQH"):
Gross goodwill	$	156.8		$	—	$	156.8
Impairment losses	—			—		—
Net AQH goodwill	156.8			—		156.8
Security and Control Solutions ("SCS"):
Gross goodwill	80.9			4.4		85.3
Impairment losses	—			—		—
Net SCS goodwill	80.9			4.4		85.3
Ergonomic and Productivity Solutions ("ERG"):
Gross goodwill	131.4			25.5		156.9
Impairment losses	—			—		—
Net ERG goodwill	131.4			25.5		156.9
Residential and Commercial HVAC:
Gross goodwill	105.2			0.1		105.3
Impairment losses	—			—		—
Net RCH goodwill	105.2			0.1		105.3
Audio, Video and Control Solutions:
Gross goodwill	4.4			—		4.4
Impairment losses	(4.4		)	—		(4.4		)
Net AVC goodwill	—			—		—
Consolidated goodwill:
Gross goodwill	478.7			30.0		508.7
Impairment losses	(4.4		)	—		(4.4		)
Net consolidated goodwill	$	474.3		$	30.0	$	504.3


(1)	The CAS and combined AVC reporting units did not have goodwill for any periods presented.


(2)	Acquisition adjustments recorded during the nine months of 2015 for the SCS, ERG and RCH segments relate to the acquisition of Numera, Anthro and Reznor, respectively. See Note B, “Acquisitions and Dispositions”.

- 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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