Goodwill and Other Intangibles

12 Months Ended

Dec. 31, 2011

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLES

During the fourth quarter of each year or upon a triggering event, the Company reviews the goodwill assigned to each of its reporting units to identify those units with a fair value more-likely-than-not less than its carrying value. With the exception of two reporting units that had recent acquisition or divestiture activity, a qualitative assessment was completed. This assessment evaluated various events and circumstances, such as macro economic conditions, industry and market conditions, cost factors, relevant events and financial trends, that may impact a reporting unit's fair value. After completing this assessment, the Company determined it was more-likely-than-not the fair value exceeded the carrying value of the reporting units qualitatively reviewed. A quantitative, "step one," impairment analysis, therefore, was not required.

For the two reporting units with recent acquisition or divestiture activity, the Company performed a quantitative, "step one," goodwill impairment analysis, which requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates and growth rates. The basis of this goodwill impairment analysis is the Company's annual budget and long-range plan (“LRP”). The annual budget and LRP includes a five year projection of future cash flows based on actual new products and customer commitments and assumes the last year of the LRP data is a fair indication of the future performance. Because the LRP is estimated over a significant future period of time, those estimates and assumptions are subject to a high degree of uncertainty. Further, the market valuation models and other financial ratios used by the Company require certain assumptions and estimates regarding the applicability of those models to the Company's facts and circumstances. The Company believes the assumptions and estimates used to determine its estimated fair value are reasonable. Different assumptions could materially affect the estimated fair value. The primary assumptions affecting the Company's December 31, 2011 goodwill quantitative, "step one," impairment review are as follows:


•	Discount rate: The Company used a 10% weighted average cost of capital (“WACC”) as the discount rate for future cash flows. The WACC is intended to represent a rate of return that would be expected by a market participant.


•	Operating income margin: The Company used historical and expected operating income margins, which may vary based on the projections of each reporting unit being evaluated.

In addition to the above primary assumptions, the Company notes the following risk to volume and operating income assumptions that could have an impact on the discounted cash flow model:


•	The automotive industry is cyclical and the Company's results of operations would be adversely affected by industry downturns.


•	The Company is dependent on market segments that use our key products and would be affected by decreasing demand in those segments.


•	The Company is subject to risks related to international operations.

Based on the assumptions outlined above, the impairment testing conducted in the fourth quarter of 2011 indicated the Company's goodwill assigned to the two reporting units that were quantitatively assessed was not impaired. Additionally, a sensitivity analysis was completed indicating a 1% increase in the discount rate or a 1% decrease in the operating margin assumptions would not result in the carrying value exceeding the fair value of either of the reporting units quantitatively assessed.

The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 are as follows:



	2011						2010
(millions of dollars)	Engine			Drivetrain			Engine			Drivetrain
Gross goodwill balance, January 1	$	1,351.9		$	263.6		$	1,297.8		$	265.6
Accumulated impairment losses, January 1	(501.8		)	(0.2		)	(501.8		)	(0.2		)
Net goodwill balance, January 1	$	850.1		$	263.4		$	796.0		$	265.4
Goodwill during the year:
Acquired*	$	—		$	96.2		$	74.1		$	—
Divested	(7.9		)	—			(1.4		)	—
Translation adjustment	(9.3		)	(6.3		)	(18.6		)	(2.0		)
Ending balance, December 31	$	832.9		$	353.3		$	850.1		$	263.4

________________

* Goodwill acquired relates to the 2011 purchase of Haldex Traction AB and the 2010 purchase of Dytech ENSA S.L.

The Company’s other intangible assets, primarily from acquisitions, consist of the following:



	December 31, 2011						December 31, 2010
(millions of dollars)	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Amortized intangible assets:
Patented and unpatented technology	$	78.9	$	20.4	$	58.5	$	69.4	$	18.0	$	51.4
Customer relationships	213.4		76.7		136.7		127.3		57.5		69.8
Distribution network	49.3		49.3		—		50.8		50.8		—
Miscellaneous	17.5		13.2		4.3		14.7		11.9		2.8
Total amortized intangible assets	359.1		159.6		199.5		262.2		138.2		124.0
In-process R&D	13.1		—		13.1		13.1		—		13.1
Unamortized trade names	30.7		—		30.7		31.7		—		31.7
Total other intangible assets	$	402.9	$	159.6	$	243.3	$	307.0	$	138.2	$	168.8

Amortization of other intangible assets was $30.8 million, $28.4 million and $26.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. The estimated useful lives of the Company's amortized intangible assets range from 3 to 15 years. The Company utilizes the straight line method of amortization recognized over the estimated useful lives of the assets. The estimated future annual amortization expense, primarily for acquired intangible assets, is as follows: $29.7 million in 2012, $28.4 million in 2013, $24.1 million in 2014, $9.1 million in 2015 and $8.6 million in 2016.

A roll-forward of the gross carrying amounts of the Company's other intangible assets is presented below:



(millions of dollars)	2011			2010
Beginning balance, January 1	$	307.0		$	265.1
Acquisitions	117.2			55.0
Divestiture	(5.6		)	—
Translation adjustment	(15.7		)	(13.1		)
Ending balance, December 31	$	402.9		$	307.0

A roll-forward of the accumulated amortization associated with the Company's other intangible assets is presented below:



(millions of dollars)	2011			2010
Beginning balance, January 1	$	138.2		$	116.5
Amortization	30.8			28.4
Divestiture	(3.8		)	—
Translation adjustment	(5.6		)	(6.7		)
Ending balance, December 31	$	159.6		$	138.2

On January 31, 2011, the Company acquired 100% of the stock of Haldex Traction AB. In connection with the acquisition, the Company utilized the multi-period excess earnings method under the income approach, to determine the value of the customer relationships capitalized, $96.7 million. Additionally, the Company capitalized $17.5 million for patented and unpatented technology and $3.0 million for trade names. Customer relationships, patented and unpatented technology and trade names will be amortized over 12, 11 and 2 year useful lives, respectively.

On May 1, 2010, the Company completed the acquisition of BERU-Eichenauer GmbH by acquiring the shares of its former joint venture partner, Eichenauer Heizelemente GmbH & Co. KG. In connection with this acquisition, the Company capitalized $14.4 million of intangible assets related to adjusting the Company's 50% investment to fair value under ASC Topic 805.

On April 10, 2010, the Company acquired 100% of Dytech ENSA S.L. In connection with this acquisition, the Company capitalized $15.6 million for customer relationships, $15.7 million for unpatented technology, $9.0 million for trade names and $0.3 million in other miscellaneous intangible assets. Customer relationships, unpatented technology and miscellaneous intangible assets will be amortized over 8, 15 and 3 year useful lives, respectively. Trade names will not be amortized.

On June 2, 2009, the Company announced the purchase of advanced gasoline ignition technology and related intellectual property from Florida-based Etatech, Inc. In connection with ASC Topic 805, "Business Combinations," the Company capitalized $13.1 million of in-process R&D. The Company intends to commercialize a high-frequency ignition system based on Etatech technology in the next five years. Amortization of the $13.1 million of in-process R&D will coincide with the commercial application of the technology.

- 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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