GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Oct. 01, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

The changes in the carrying amount of goodwill for the nine months ended October 1, 2022 were as follows:


	December 31, 2021		Goodwill Resulting from Business Combinations (1)		Impairments		Foreign Currency Translation		October 1, 2022
HVAC reportable segment
Gross goodwill	$	528.9	$	0.1	$	—	$	(18.6)	$	510.4
Accumulated impairments	(334.1)		—		—		13.1		(321.0)
Goodwill	194.8		0.1		—		(5.5)		189.4

Detection and Measurement reportable segment
Gross goodwill	424.9		10.9		—		(20.0)		415.8
Accumulated impairments	(162.4)		—		—		5.8		(156.6)
Goodwill	262.5		10.9		—		(14.2)		259.2

Total
Gross goodwill	953.8		11.0		—		(38.6)		926.2
Accumulated impairments	(496.5)		—		—		18.9		(477.6)
Goodwill	$	457.3	$	11.0	$	—	$	(19.7)	$	448.6

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(1)Reflects (i) goodwill acquired with the ITL acquisition of $10.7, (ii) an increase in Sealite's goodwill of $0.2 resulting from revisions to the valuation of certain assets and liabilities, and (iii) an increase in Cincinnati Fan's goodwill of $0.1 resulting from revisions to the valuation of certain assets and liabilities. As indicated in Note 1, the acquired assets, including goodwill, and liabilities assumed in the Cincinnati Fan and ITL acquisitions have been recorded at estimates of fair value and are subject to change upon completion of acquisition accounting.

Other Intangibles, Net

Identifiable intangible assets at October 1, 2022 and December 31, 2021 comprised the following:


	October 1, 2022						December 31, 2021
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Intangible assets with determinable lives: (1)
Customer relationships	$	196.1	$	(37.3)	$	158.8	$	188.2	$	(26.7)	$	161.5
Technology	80.2		(16.5)		63.7		80.1		(11.9)		68.2
Patents	4.5		(4.5)		—		4.5		(4.5)		—
Other	36.4		(23.4)		13.0		31.6		(18.0)		13.6
	317.2		(81.7)		235.5		304.4		(61.1)		243.3
Trademarks with indefinite lives	168.2		—		168.2		172.2		—		172.2
Total	$	485.4	$	(81.7)	$	403.7	$	476.6	$	(61.1)	$	415.5

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(1) The identifiable intangible assets associated with the ITL acquisition consist of customer relationships of $14.0, definite-lived trademarks of $3.0, technology of $2.9, and non-compete agreements of $2.6.

In connection with the acquisition of ITL, which has definite-lived intangibles as noted above, we updated our estimated annual amortization expense related to intangible assets to approximately $29.0 for the full year 2022 and $25.0 for 2023 and each of the four years thereafter.

At October 1, 2022, the net carrying value of intangible assets with determinable lives consisted of $96.1 in the HVAC reportable segment and $139.4 in the Detection and Measurement reportable segment. At October 1, 2022, trademarks with indefinite lives consisted of $104.6 in the HVAC reportable segment and $63.6 in the Detection and Measurement reportable segment.

We review goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter in conjunction with our annual financial planning process, with such testing based primarily on events and circumstances existing as of the end of the third quarter. In addition, we test goodwill for impairment on a more frequent basis if there are indications of potential impairment. In reviewing goodwill and indefinite-lived intangible assets for impairment, we initially perform a qualitative analysis. If there is an indication of impairment, we then perform a quantitative analysis. A significant amount of judgment is involved in determining if an indication of impairment has occurred between annual testing dates. Such indication may include: a significant decline in expected future cash flows; a significant adverse change in legal factors or the business climate; unanticipated competition; and a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit.

As indicated in Note 1, we concluded during the third quarter of 2021 that the operating and financial milestones related to the ULC contingent consideration would not be achieved, resulting in the reversal of the related liability of $24.3, with the offset to “Other operating (income) expense, net.” We also concluded that the lack of achievement of these milestones, along with lower than anticipated future cash flows, were indicators of potential impairment related to ULC’s indefinite-lived intangible assets and goodwill. As such, we performed a quantitative analysis on ULC’s indefinite-lived intangible assets and goodwill during the third quarter of 2021. Based on such analysis, we determined that the carrying value of ULC’s net assets exceeded the implied fair value of the business. As a result, we recorded an impairment charge to “Impairment of goodwill and intangible assets” of $24.3 during the quarter, with $23.3 related to goodwill and the remainder to trademarks.

The total goodwill of ULC was $12.0 as of October 1, 2022. A change in assumptions used in ULC's quantitative analysis (e.g., projected revenues and profit growth rates, discount rates, industry price multiples, etc.) could result in ULC's estimated fair value being less than the carrying value of its net assets. In addition to ULC, the fair values of Sealite, ECS, Cincinnati Fan and ITL, acquisitions in 2021 and thus far in 2022, approximate their respective carrying values. If any of these reporting units are unable to achieve their current financial forecast, we may be required to record an impairment charge in a future period related to their goodwill and/or indefinite-lived intangible assets.

We perform our annual trademarks impairment testing during the fourth quarter, or on a more frequent basis, if there are indications of potential impairment. The fair value of our trademarks is based on applying estimated royalty rates to projected revenues, with resulting cash flows discounted at a rate of return that reflects current market conditions (fair value based on unobservable inputs - Level 3, as defined in Note 17). The primary basis for these projected revenues is the annual operating plan for each of the related businesses, which is prepared in the fourth quarter of each year.