Goodwill and Identifiable Intangible Assets

12 Months Ended

Dec. 31, 2018

Goodwill and Identifiable Intangible Assets

6. Goodwill and Identifiable Intangible Assets

We had goodwill of $2,080.3 million and $1,912.0 million as of December 31, 2018 and 2017, respectively. The increase of $168.3 million was primarily due to the acquisition of Fiberon in the Doors & Security segment as well as acquisition related adjustments in our Plumbing segment related to the acquisition of Victoria + Albert, 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
Balance at December 31, 2016 (a)	$	924.3		$	670.2		$	239.3		$	1,833.8
2017 translation adjustments		2.0			3.3			1.2			6.5
Acquisition-related adjustments		—			71.7			—			71.7
Balance at December 31, 2017 (a)	$	926.3		$	745.2		$	240.5		$	1,912.0
2018 translation adjustments		(2.3	)		(5.9	)		(1.4	)		(9.6	)
Acquisition-related adjustments		—			4.4			173.5			177.9
Balance at December 31, 2018 (a)	$	924.0		$	743.7		$	412.6		$	2,080.3

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

We also had identifiable intangible assets, principally tradenames and customer relationships, of $1,246.8 million and $1,162.4 million as of December 31, 2018 and 2017, respectively. The $117.9 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 charges of $62.6 million in our Cabinets segment.

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



	As of December 31, 2018							As of December 31, 2017
(In millions)	Gross Carrying Amounts		Accumulated Amortization			Net Book Value		Gross Carrying Amounts		Accumulated Amortization			Net Book Value
Indefinite-lived tradenames	$	673.9	$	—		$	673.9	$	709.9	$	—		$	709.9
Amortizable intangible assets
Tradenames		19.8		(11.9	)		7.9		15.7		(9.9	)		5.8
Customer and contractual relationships		800.3		(260.2	)		540.1		663.8		(232.0	)		431.8
Patents/proprietary technology		73.5		(48.6	)		24.9		60.2		(45.3	)		14.9
Total		893.6		(320.7	)		572.9		739.7		(287.2	)		452.5
Total identifiable intangibles	$	1,567.5	$	(320.7	)	$	1,246.8	$	1,449.6	$	(287.2	)	$	1,162.4

Amortizable intangible assets, principally customer relationships and patents/proprietary technology, are subject to amortization on a straight-line basis over their estimated useful life, ranging from 2 to 30 years, based on the assessment of a number of factors that may impact useful life. These factors include historical 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. We expect to record intangible amortization of approximately $43 million in 2019, $42 million in 2020, $42 million in 2021, $40 million in 2022, and $39 million in 2023.

We review indefinite-lived tradename intangible assets for impairment annually in the fourth quarter, as well as whenever market or business events indicate there may be a potential impact on a specific intangible asset. Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset exceeds its fair value. We measure fair value using the standard 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 the remaining useful life. The determination of fair value using this technique requires the use of estimates and assumptions related to projected tradename revenue growth, the assumed royalty rate and the discount rate.

During 2018, we recognized asset impairment charges of $62.6 million related to two indefinite-lived tradenames within our Cabinets segment. During the third quarter of 2018, we recognized an impairment of $27.1 million related to one tradename, which 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. During the fourth quarter of 2018, we recognized an impairment of $35.5 million related to another tradename, which was primarily the result of lower than forecasted sales during the fourth quarter of 2018 as well as projected changes in the mix of revenue across our tradenames in future periods, including the impact of more moderate industry growth expectations, which were finalized during our annual planning process conducted during the fourth quarter. The fair values of the impaired tradenames were 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 10). As of December 31, 2018, the carrying value of the tradenames that were impaired was approximately $152.0 million. We did not record any asset impairment changes associated with goodwill or indefinite-lived assets in 2017 or 2016.

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 fall below our assumptions, actions of key customers, increases in 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.