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Accounting Policies | 6 Months Ended
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Jun. 28, 2015
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 During the second quarter of 2015, $4.1 million of goodwill in the Americas segment was reclassified to assets held for sale. Refer to Note 6 Assets Held for Sale for further discussion. Also during the second quarter of 2015, the working capital adjustment relating to the AERCO International, Inc. (“AERCO”) acquisition was finalized resulting in a $0.7 million reduction in the purchase price and goodwill recorded in the Americas segment. The final purchase price after the adjustment was $271.5 million. The changes in the carrying amount of goodwill by geographic segment are as follows:
|  | June 28, 2015 |
|  | Gross Balance |  | Accumulated Impairment Losses |  | Net Goodwill |
|  | Balance January 1, 2015 |  | Acquired During the Period |  | Foreign Currency Translation and Other |  | Balance June 28, 2015 |  | Balance January 1, 2015 |  | Impairment Loss During the Period |  | Balance June 28, 2015 |  | June 28, 2015 |
|  | (in millions ) |
Americas |  | $ | 398.0 |  | $ | — |  | $ | (5.7 | ) | $ | 392.3 |  | $ | (24.5 | ) | $ | — |  | $ | (24.5 | ) | $ | 367.8 |
Europe, Middle East and Africa (EMEA) |  | 265.5 |  | — |  | (18.8 | ) | 246.7 |  | — |  | — |  | — |  | 246.7 |
Asia-Pacific |  | 12.9 |  | — |  | — |  | 12.9 |  | (12.9 | ) | — |  | (12.9 | ) | — |
Total |  | $ | 676.4 |  | $ | — |  | $ | (24.5 | ) | $ | 651.9 |  | $ | (37.4 | ) | $ | — |  | $ | (37.4 | ) | $ | 614.5 |
|  | June 29, 2014 |
|  | Gross Balance |  | Accumulated Impairment Losses |  | Net Goodwill |
|  | Balance January 1, 2014 |  | Acquired During the Period |  | Foreign Currency Translation and Other |  | Balance June 29, 2014 |  | Balance January 1, 2014 |  | Impairment Loss During the Period |  | Balance June 29, 2014 |  | June 29, 2014 |
|  | (in millions) |
Americas |  | $ | 224.7 |  | $ | — |  | $ | (0.1 | ) | $ | 224.6 |  | $ | (24.5 | ) | $ | — |  | $ | (24.5 | ) | $ | 200.1 |
EMEA |  | 301.3 |  | — |  | (2.8 | ) | 298.5 |  | — |  | — |  | — |  | 298.5 |
Asia-Pacific |  | 13.3 |  | — |  | (0.4 | ) | 12.9 |  | — |  | — |  | — |  | 12.9 |
Total |  | $ | 539.3 |  | $ | — |  | $ | (3.3 | ) | $ | 536.0 |  | $ | (24.5 | ) | $ | — |  | $ | (24.5 | ) | $ | 511.5 |
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 goodwill and indefinite-lived intangible assets impairment assessment in the fourth quarter of each year. 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 28, 2015 |  | December 31, 2014 |
|  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |
|  | (in millions) |
Patents |  | $ | 16.2 |  | $ | (13.7 | ) | $ | 2.5 |  | $ | 16.2 |  | $ | (13.3 | ) | $ | 2.9 |
Customer relationships |  | 204.4 |  | (94.7 | ) | 109.7 |  | 206.7 |  | (87.5 | ) | 119.2 |
Technology |  | 41.9 |  | (14.6 | ) | 27.3 |  | 42.1 |  | (12.9 | ) | 29.2 |
Trade Names |  | 20.4 |  | (5.1 | ) | 15.3 |  | 20.6 |  | (4.2 | ) | 16.4 |
Other |  | 9.5 |  | (5.8 | ) | 3.7 |  | 9.5 |  | (5.7 | ) | 3.8 |
Total amortizable intangibles |  | 292.4 |  | (133.9 | ) | 158.5 |  | 295.1 |  | (123.6 | ) | 171.5 |
Indefinite-lived intangible assets |  | 37.2 |  | — |  | 37.2 |  | 38.6 |  | — |  | 38.6 |
Total |  | $ | 329.6 |  | $ | (133.9 | ) | $ | 195.7 |  | $ | 333.7 |  | $ | (123.6 | ) | $ | 210.1 |
Aggregate amortization expense for amortizable intangible assets for the second quarters of 2015 and 2014 was $5.2 million and $3.7 million, respectively, and for the first six months of 2015 and 2014 was $10.3 million and $7.4 million, respectively. Additionally, future amortization expense for the next five years on amortizable intangible assets is expected to be approximately $10.3 million for the remainder of 2015, $19.1 million for 2016, $18.8 million for 2017, $15.6 million for 2018 and $11.8 million for 2019. 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 12.1 years. Patents, customer relationships, technology, trade names and other amortizable intangibles have weighted-average remaining lives of 4.7 years, 11.8 years, 10.0 years, 14.2 years and 33.0 years, respectively. Indefinite-lived intangible assets primarily include trademarks and trade names. Stock-Based Compensation The Company maintains one stock incentive plan, the Second Amended and Restated 2004 Stock Incentive Plan (the “2004 Stock Incentive Plan”). Under this plan, key employees have been granted nonqualified stock options to purchase the Company’s Class A common stock. Options typically become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. However, with the introduction in 2014 of performance stock units discussed below, most options granted in 2014 become exercisable over a three-year period at the rate of one-third per year. Options granted under the plan 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 practice has been to grant all options at fair market value on the grant date. The Company did not issue any stock options in the first six months of 2015 and issued 4,808 stock options during the first six months of 2014. The Company grants shares of restricted stock and deferred shares 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. Employees’ restricted stock awards and deferred shares typically vest over a three-year period at the rate of one-third per year. However, with the introduction in 2014 of performance stock units discussed below, most restricted stock awards and deferred shares granted in 2014 vest over a two-year period at the rate of 50% per year. The restricted stock awards and deferred shares are amortized to expense on a straight-line basis over the vesting period. The Company issued 60,278 and 41,885 shares of restricted stock in the first six months of 2015 and 2014, respectively. Beginning in 2014, the Company also granted performance stock units to key employees under the 2004 Stock Incentive Plan. Performance stock units vest at the end of the performance period set by the Compensation Committee of our Board of Directors at the time of grant. Upon vesting, the number of shares of the Company’s Class A common stock awarded to each performance stock unit recipient will be determined based on the Company’s performance relative to certain performance goals set at the time the performance stock units were granted. The recipient of a performance stock unit award may earn from no shares to twice the number of target shares awarded to such recipient. The performance stock units are amortized to expense over the vesting period, and based on the Company’s performance relative to the performance goals, may be adjusted. If the performance goals are not met, no awards are earned and previously recognized compensation expense is reversed. The Company awarded 631 performance stock units in the first six months of 2015, and did not award any performance stock units in the first six months of 2014. The Company 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 either annually over a three-year period from the grant date or upon the third anniversary of 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 59,995 RSUs and 30,561 RSUs in the first six months of 2015 and 2014, 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:
|  | 2015 |  | 2014 |
Expected life (years) |  | 3.0 |  | 3.0 |
Expected stock price volatility |  | 23.4 | % | 31.2 | %
Expected dividend yield |  | 1.2 | % | 0.9 | %
Risk-free interest rate |  | 1.1 | % | 0.7 | %
The above assumptions were used to determine the RSUs weighted average grant-date fair value of $19.04 and $22.57 in 2015 and 2014, 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, 2014. Shipping and Handling The Company’s shipping and handling costs included in selling, general and administrative expenses were $13.8 million and $15.8 million for the second quarters of 2015 and 2014, respectively, and were $28.2 million and $30.5 million for the first six months of 2015 and 2014, respectively. Research and Development Research and development costs included in selling, general and administrative expenses were $6.3 million and $5.6 million for the second quarters of 2015 and 2014, respectively, and were $12.7 million and $11.9 million for the first six months of 2015 and 2014, 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 April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, “Interest — Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs”. Under ASU 2015-03, debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset, except when incurred before receipt of the funding from the associated debt liability. ASU 2015-03 is effective in the first quarter of 2016 for public companies with calendar year ends, with early adoption permitted. The ASU requires retrospective application to all prior periods presented in the financial statements. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. In January 2015, the FASB issued ASU 2015-01, “Income Statement—Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”. ASU 2015-01 eliminates from U.S. GAAP the concept of extraordinary items as part of its initiative to reduce complexity in accounting standards. ASU 2015-01 is effective in the first quarter of 2016 for public companies with calendar year ends, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The ASU may be applied prospectively or retrospectively to all prior periods presented. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

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