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Goodwill and Identifiable Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Identifiable Intangible Assets

6.    Goodwill and Identifiable Intangible Assets

We had goodwill of $2,090.2 million and $2,080.3 million as of December 31, 2019 and 2018, respectively. 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, 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

 

2019 translation adjustments

 

 

1.5

 

 

 

 

3.6

 

 

 

 

0.5

 

 

 

 

5.6

 

Acquisition-related adjustments

 

 

 

 

 

 

 

 

 

 

4.3

 

 

 

 

4.3

 

Balance at December 31, 2019(a)

 

$

925.5

 

 

 

$

747.3

 

 

 

$

417.4

 

 

 

$

2,090.2

 

 

(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 $1,168.9 million and $1,246.8 million as of December 31, 2019 and 2018, respectively.  The $34.0 million decrease in gross identifiable intangible assets was primarily due to tradename impairment charges of $41.5 million in our Cabinets segment partially offset by foreign translation adjustments.

The gross carrying value and accumulated amortization by class of intangible assets as of December 31, 2019 and 2018 were as follows:

 

 

 

 

As of December 31, 2019

 

 

 

As of December 31, 2018

 

(In millions)

 

 

Gross

Carrying

Amounts

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

 

Gross

Carrying

Amounts

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Indefinite-lived tradenames

 

 

$

635.6

 

 

$

 

 

$

635.6

 

 

 

$

673.9

 

 

$

 

 

$

673.9

 

Amortizable intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames

 

 

 

20.6

 

 

 

(12.9

)

 

 

7.7

 

 

 

 

19.8

 

 

 

(11.9

)

 

 

7.9

 

Customer and contractual relationships

 

 

 

803.9

 

 

 

(299.6

)

 

 

504.3

 

 

 

 

800.3

 

 

 

(260.2

)

 

 

540.1

 

Patents/proprietary technology

 

 

 

73.4

 

 

 

(52.1

)

 

 

21.3

 

 

 

 

73.5

 

 

 

(48.6

)

 

 

24.9

 

Total

 

 

 

897.9

 

 

 

(364.6

)

 

 

533.3

 

 

 

 

893.6

 

 

 

(320.7

)

 

 

572.9

 

Total identifiable intangibles

 

 

$

1,533.5

 

 

$

(364.6

)

 

$

1,168.9

 

 

 

$

1,567.5

 

 

$

(320.7

)

 

$

1,246.8

 

 

Amortizable intangible assets, principally customer relationships, 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 which include customer attrition rates and other relevant factors. We expect to record intangible amortization of approximately $42 million in 2020, $42 million in 2021, $40 million in 2022, $39 million in 2023, and $38 million in 2024.

 

In the fourth quarter of 2019, we recognized an impairment charge of $12.0 million related to an indefinite-lived tradename in our Cabinets segment.  This charge was the result of a strategic shift associated with new segment leadership and acceleration of our capacity rebalancing initiatives from custom cabinetry products to value-based cabinetry products as a result of lower than expected sales of custom cabinetry products compared to prior forecasts.  As of December 31, 2019, the estimated fair value of this tradename equaled its carrying value of $38.6 million.

 

In the third quarter of 2019, we recognized an impairment charge of $29.5 million related to a second indefinite-lived tradename in our Cabinets segment, which was primarily the result of a continuing shift in consumer demand from semi-custom cabinetry products to value-priced cabinetry products, which led to consecutive downward adjustments of internal sales forecasts and future growth rates associated with the tradename.  In the fourth quarter of 2018, we recorded an impairment charge of $35.5 million related to the same indefinite-lived 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 of 2018. As of December 31, 2019, the estimated fair value of this tradename exceeded its carrying value of $85.0 million by less than 10%.

 

During the third quarter of 2018, we recorded a pre-tax impairment charge of $27.1 million related to a third indefinite-lived tradename within the Cabinets segment.  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.  As of December 31, 2019, the estimated fair value of this tradename exceeded its carrying value of $39.1 million by less than 10%.

 

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 values include forecasted revenue growth rates for the tradename, assumed royalty rate, and a market-participant discount rate that reflects the level of risk associated with the tradenames’ future revenues 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 11).

 

A reduction in the estimated fair value of these three tradenames could trigger additional impairment charges in future periods.  Events or circumstances that could have a potential negative effect on the estimated fair value of our reporting units and indefinite-lived tradenames include: lower than forecasted revenues, 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 a 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 assets.