Goodwill and Identifiable Intangible Assets

9 Months Ended

Sep. 30, 2018

Goodwill and Identifiable Intangible Assets

5.	Goodwill and Identifiable Intangible Assets

We had goodwill of $2,063.3 million and $1,912.0 million as of September 30, 2018 and December 31, 2017, respectively. The $151.3 million increase is primarily due to the acquisition of Fiberon in the Doors & Security segment in the quarter as well as acquisition related adjustments in our Plumbing segment related to our Victoria + Albert acquisition, partially offset by foreign translation adjustments. The change in the net carrying amount of goodwill by segment was as follows:


(In millions)	Cabinets			Plumbing			Doors & Security			Total Goodwill
Goodwill at December 31, 2017 ^(a)	$	926.3		$	745.2		$	240.5		$	1,912.0
Year-to-date translation adjustments		(0.4	)		(1.6	)		(0.6	)		(2.6	)
Acquisition-related adjustments		—			7.1			146.8			153.9

Goodwill at September 30, 2018 ^(a)	$	925.9		$	750.7		$	386.7		$	2,063.3

^(a)

Net of accumulated impairment losses of $399.5 million in the Doors & Security segment.

We also had net identifiable intangible assets, principally tradenames, of $1,333.8 million and $1,162.4 million as of September 30, 2018 and December 31, 2017, respectively. The $196.4 million increase in gross identifiable intangible assets was primarily due to the acquisition of Fiberon in our Doors & Security segment partially offset by a tradename impairment charge of $27.1 million in our Cabinets segment.

The gross carrying value and accumulated amortization by class of identifiable intangible assets as of September 30, 2018 and December 31, 2017 were as follows:


(In millions)	As of September 30, 2018							As of December 31, 2017
	Gross Carrying Amounts		Accumulated Amortization			Net Book Value		Gross Carrying Amounts		Accumulated Amortization			Net Book Value
Indefinite-lived tradenames	$	724.0	$	—		$	724.0	$	709.9	$	—		$	709.9

Amortizable intangible assets
Tradenames		15.7		(11.6	)		4.1		15.7		(9.9	)		5.8
Customer and contractual relationships		832.7		(253.4	)		579.3		663.8		(232.0	)		431.8
Patents/proprietary technology		73.6		(47.2	)		26.4		60.2		(45.3	)		14.9

Total		922.0		(312.2	)		609.8		739.7		(287.2	)		452.5

Total identifiable intangibles	$	1,646.0	$	(312.2	)	$	1,333.8	$	1,449.6	$	(287.2	)	$	1,162.4

Amortizable identifiable intangible assets are subject to amortization on a straight-line basis over their estimated useful life, ranging from 2 to 20 years, based on the assessment of a number of factors that may impact useful life. These factors include historical and tradename performance with respect to consumer name

recognition, geographic market presence, market share, plans for ongoing tradename support and promotion, customer attrition rates and other relevant factors.

As of December 31, 2017, the fair value of two tradenames in the Cabinets segment exceeded their carrying value by less than 10%. In the third quarter of 2018, we recorded a pre-tax indefinite-lived tradename impairment charge of $27.1 million related to one of these tradenames. This charge was primarily the result of reduced revenue growth expectations associated with Cabinets operations in Canada, including the announced closure of Company-owned retail locations during the third quarter of 2018. The fair value of the impaired tradename was measured using the relief-from-royalty approach, which estimates the present value of royalty income that could be hypothetically earned by licensing the tradename to a third party over its remaining useful life. Some of the more significant assumptions inherent in estimating the fair value include estimated future annual net sales for the tradename, assumed royalty rate, income tax rate, and a discount rate that reflects the level of risk associated with the tradename’s future sales and profitability. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management plans. These assumptions represent level 3 inputs of the fair value hierarchy (refer to Note 9). As of September 30, 2018, the carrying value of the tradename that was impaired was $39.9 million.

A reduction in the estimated fair value of these two tradenames could trigger additional impairment in future periods. As of September 30, 2018, the total carrying value of these tradenames was $189.9 million. Factors influencing our fair value estimates of the tradenames are described in the following paragraph.

The events and/or circumstances that could have a potential negative effect on the estimated fair value of our reporting units and indefinite-lived tradenames include: actual new construction and repair and remodel growth rates that lag our assumptions, actions of key customers, volatility of discount rates, continued economic uncertainty, higher levels of unemployment, weak consumer confidence, lower levels of discretionary consumer spending, a decrease in royalty rates and decline in the trading price of our common stock. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived intangible assets.

- 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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