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Accounting Policies | 6 Months Ended
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Jun. 30, 2013
Accounting Policies |
Accounting Policies | 2. Accounting Policies Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Goodwill and Long-Lived Assets The changes in the carrying amount of goodwill by geographic segment are as follows:
|  | June 30, 2013 |
|  | Gross Balance |  | Accumulated Impairment Losses |  | Net Goodwill |
|  | Balance January 1, 2013 |  | Acquired During the Period |  | Foreign Currency Translation and Other |  | Balance June 30, 2013 |  | Balance January 1, 2013 |  | Impairment Loss During the Period |  | Balance June 30, 2013 |  | June 30, 2013 |
|  | (in millions) |
North America |  | $ | 225.6 |  | $ | — |  | $ | (0.7 | ) | $ | 224.9 |  | $ | (24.2 | ) | $ | — |  | $ | (24.2 | ) | $ | 200.7 |
Europe, Middle East and Africa (EMEA) |  | 293.9 |  | — |  | (4.1 | ) | 289.8 |  | — |  | — |  | — |  | 289.8 |
Asia |  | 12.9 |  | — |  | — |  | 12.9 |  | — |  | — |  | — |  | 12.9 |
Total |  | $ | 532.4 |  | $ | — |  | $ | (4.8 | ) | $ | 527.6 |  | $ | (24.2 | ) | $ | — |  | $ | (24.2 | ) | $ | 503.4 |
|  | July 1, 2012 |
|  | Gross Balance |  | Accumulated Impairment Losses |  | Net Goodwill |
|  | Balance January 1, 2012 |  | Acquired During the Period |  | Foreign Currency Translation and Other |  | Balance July 1, 2012 |  | Balance January 1, 2012 |  | Impairment Loss During the Period |  | Balance July 1, 2012 |  | July 1, 2012 |
|  | (in millions) |
North America |  | $ | 213.8 |  | $ | 13.1 |  | $ | (0.3 | ) | $ | 226.6 |  | $ | (23.2 | ) | $ | — |  | $ | (23.2 | ) | $ | 203.4 |
EMEA |  | 285.3 |  | — |  | (10.8 | ) | 274.5 |  | — |  | — |  | — |  | 274.5 |
Asia |  | 12.7 |  | — |  | (0.1 | ) | 12.6 |  | — |  | — |  | — |  | 12.6 |
Total |  | $ | 511.8 |  | $ | 13.1 |  | $ | (11.2 | ) | $ | 513.7 |  | $ | (23.2 | ) | $ | — |  | $ | (23.2 | ) | $ | 490.5 |
On January 31, 2012, the Company completed the acquisition of tekmar Control Systems (tekmar) in a share purchase transaction. The initial purchase price paid was CAD $18.0 million, with post-closing adjustments related to working capital and an earnout based on the attainment of certain future earnings levels. The initial purchase price paid was equal to approximately $17.8 million based on the exchange rate of Canadian dollar to U.S. dollar as of January 31, 2012. The total purchase price will not exceed CAD $26.2 million. The Company accounted for the transaction as a business combination. In January 2013, the Company completed a purchase price allocation that resulted in the recognition of $11.7 million in goodwill and $10.1 million in intangible assets. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that they might be impaired, such as from a change in business conditions. The Company performs its annual impairment assessment of goodwill and indefinite-lived intangible assets in the fourth quarter of each year. As of October 28, 2012, the annual impairment analysis date, the fair value of the EMEA reporting unit exceeded the carrying value by a significant amount. The EMEA reporting unit represents the EMEA geographic segment excluding the Blücher reporting unit. During the six months ended June 30, 2013, operating results for the EMEA reporting unit have been hindered by the downturn in the economic environment in Europe and continued to fall below the expected operating results and growth rates used in the calculation of the present value of future cash flow projections, triggering the decision to update the impairment analysis. As a result of the updated fair value assessment, it was determined that the fair value of the EMEA reporting unit did decrease from year end but continues to exceed its carrying value by approximately 15%. The Company also performed an analysis on the long-lived assets in the EMEA reporting unit as a result of the triggering event and concluded that these assets were not impaired. Should the EMEA reporting unit’s operating results decline further for any reason, including if the European marketplace deteriorates beyond current expectations or should interest rates increase significantly, then the reporting unit’s goodwill may be at risk for impairment in the future. The EMEA reporting unit’s goodwill balance as of June 30, 2013 was $214.8 million. Intangible assets with estimable lives and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of intangible assets with estimable lives and other long-lived assets are measured by a comparison of the carrying amount of an asset or asset group to future net undiscounted pretax cash flows expected to be generated by the asset or asset group. If these comparisons indicate that an asset is not recoverable, the impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the related estimated fair value. Estimated fair value is based on either discounted future pretax operating cash flows or appraised values, depending on the nature of the asset. The Company determines the discount rate for this analysis based on the weighted average cost of capital based on the market and guideline public companies for the related business, and does not allocate interest charges to the asset or asset group being measured. Judgment is required to estimate future operating cash flows. Intangible assets include the following:
|  | June 30, 2013 |  | December 31, 2012 |
|  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |
|  | (in millions) |
Patents |  | $ | 16.5 |  | $ | (12.1 | ) | $ | 4.4 |  | $ | 16.5 |  | $ | (11.7 | ) | $ | 4.8 |
Customer relationships |  | 133.8 |  | (74.0 | ) | 59.8 |  | 134.3 |  | (68.7 | ) | 65.6 |
Technology |  | 28.1 |  | (10.3 | ) | 17.8 |  | 28.5 |  | (9.3 | ) | 19.2 |
Trade Names |  | 13.8 |  | (2.6 | ) | 11.2 |  | 13.9 |  | (1.9 | ) | 12.0 |
Other |  | 8.6 |  | (5.6 | ) | 3.0 |  | 8.7 |  | (5.5 | ) | 3.2 |
Total amortizable intangibles |  | 200.8 |  | (104.6 | ) | 96.2 |  | 201.9 |  | (97.1 | ) | 104.8 |
Indefinite-lived intangible assets |  | 41.5 |  | — |  | 41.5 |  | 41.8 |  | — |  | 41.8 |
Total |  | $ | 242.3 |  | $ | (104.6 | ) | $ | 137.7 |  | $ | 243.7 |  | $ | (97.1 | ) | $ | 146.6 |
Aggregate amortization expense for amortizable intangible assets for the second quarters of 2013 and 2012 was $3.7 million and $4.2 million, respectively, and for the first six months of 2013 and 2012 was $7.5 million and $8.3 million, respectively. Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $7.7 million for the remainder of 2013, $14.8 million for 2014, $14.5 million for 2015, $14.0 million for 2016 and $13.6 million for 2017. Amortization expense is recorded on a straight-line basis over the estimated useful lives of the intangible assets. The weighted-average remaining life of total amortizable intangible assets is 8.8 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining lives of 6.0 years, 6.1 years, 11.5 years, 11.2 years and 41.1 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names. Stock-Based Compensation The Company maintains two stock incentive plans under which key employees have been granted incentive stock options (ISOs) and nonqualified stock options (NSOs) to purchase the Company’s Class A Common Stock. Only one plan, the Second Amended and Restated 2004 Stock Incentive Plan, is currently available for the grant of new stock options, which are currently being granted only to employees. Under the 2004 Stock Incentive Plan, options become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. ISOs and NSOs granted under the plans may have exercise prices of not less than 100% of the fair market value of the Class A Common Stock on the date of grant. The Company’s current practice is to grant all options at fair market value on the grant date. The Company issued 9,500 stock options during the first six months of 2013. The Company has also granted shares of restricted stock to key employees and stock awards to non-employee members of the Company’s Board of Directors under the 2004 Stock Incentive Plan. Stock awards to non-employee members of the Company’s Board of Directors are fully vested upon grant, and employees’ restricted stock awards vest over a three-year period at the rate of one-third per year. The restricted stock awards are amortized to expense on a straight-line basis over the vesting period. The Company issued 3,167 shares of restricted stock under the 2004 Stock Incentive Plan in the first six months of 2013. The Company also has a Management Stock Purchase Plan that allows for the purchase of restricted stock units (RSUs) by key employees. On an annual basis, key employees may elect to receive a portion of their annual incentive compensation in RSUs instead of cash. Each RSU represents one share of Class A Common Stock and is purchased by the employee at 67% of the fair market value of the Company’s Class A Common Stock on the date of grant. RSUs vest annually over a three-year period from the grant date and receipt of the shares underlying RSUs is deferred for a minimum of three years or such greater number of years as is chosen by the employee. An aggregate of 2,000,000 shares of Class A Common Stock may be issued under the Management Stock Purchase Plan. The Company granted 44,777 RSUs and 63,739 RSUs in the first six months of 2013 and 2012, respectively. The fair value of each RSU issued under the Management Stock Purchase Plan is estimated on the date of grant using the Black-Scholes-Merton Model based on the following weighted average assumptions:
|  | 2013 |  | 2012 |
Expected life (years) |  | 3.0 |  | 3.0 |
Expected stock price volatility |  | 34.1 | % | 38.3 | %
Expected dividend yield |  | 0.9 | % | 1.1 | %
Risk-free interest rate |  | 0.4 | % | 0.4 | %
The above assumptions were used to determine the weighted average grant-date fair value of RSUs of $18.05 and $15.68 in 2013 and 2012, respectively. A more detailed description of each of these plans can be found in Note 12 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Shipping and Handling The Company’s shipping costs included in selling, general and administrative expenses were $10.2 million and $9.2 million for the second quarters of 2013 and 2012, respectively, and were $19.3 million and $18.8 million for the first six months of 2013 and 2012, respectively. Research and Development Research and development costs included in selling, general and administrative expenses were $5.5 million and $5.2 million for the second quarters of 2013 and 2012, respectively, and were $10.9 million and $10.5 million for the first six months of 2013 and 2012, respectively. Taxes, Other than Income Taxes Taxes assessed by governmental authorities on sale transactions are recorded on a net basis and excluded from sales in the Company’s consolidated statements of operations. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. New Accounting Standards In July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, which is intended to eliminate the diversity in practice in the presentation of unrecognized tax benefits in those instances. ASU 2013-11 is effective for fiscal years and interim periods beginning after December 15, 2013. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. In March 2013, the FASB issued Accounting Standards Update (ASU) No. 2013-05, “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Group of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” This ASU is intended to eliminate diversity in practice on the release of cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest. In addition, the amendments in this ASU resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2013, with early adoption permitted, and must be applied prospectively. The Company early adopted the ASU in fiscal year 2013. In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”, which requires additional disclosures about amounts reclassified out of OCI by component, either on the face of the income statement or as a separate footnote to the financial statements. ASU 2013-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2012. The adoption of this guidance has not had a material impact on the Company’s financial statements.

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