Goodwill And Related Intangible Assets

12 Months Ended

Dec. 31, 2013

5. GOODWILL AND RELATED INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill for the years ended December 31 were as follows (in thousands):


					Industrial and
		Residential			Infrastructure
		Products			Products			Total
Balance at January 1, 2012	$	192,834		$	155,492		$	348,326
Acquired goodwill		4,537			10,474			15,011
Impairment		(4,328	)		–			(4,328	)
Foreign currency translation		–			854			854
Balance at December 31, 2012	$	193,043		$	166,820		$	359,863
Acquired goodwill		2,467			–			2,467
Adjustments to prior year acquisitions		10			242			252
Impairment		–			(21,040	)		(21,040	)
Foreign currency translation		–			(368	)		(368	)
Balance at December 31, 2013	$	195,520		$	145,654		$	341,174

Goodwill is recognized net of accumulated impairment losses of $150,965,000 and $129,925,000 as of December 31, 2013 and 2012, respectively.

Interim Intangibles Impairment Testing

We test goodwill and indefinite-lived intangible assets for impairment on an annual basis as of October 31 and at interim dates when indicators of impairment are present. During the third quarter of 2013, we significantly revised our forecast to reflect lower revenue and operating margin expectations for the Company in 2013 . As a result, we concluded there was an indicator of impairment requiring an interim impairment test for four of our reporting units, two within the Residential Products segment and two within the Industrial and Infrastructure Products segment. In 2012 and 2011, no indicators of impairment were identified; therefore, no interim tests were performed.

Step one of the impairment test consists of comparing the fair value of a reporting unit with its carrying amount including goodwill. The fair value of each reporting unit was determined using two valuation techniques: an income approach and a market approach. Each valuation approach relies on significant assumptions including a weighted average cost of capital (WACC). The WACC is calculated based upon the capital structure of market participants in the Company's peer group. The WACC used during the interim impairment test ranged from 12.9% to 13.4%. Other assumptions used to calculate fair value for each reporting unit include projected revenue growth, forecasted cash flows, and earnings multiples based on the market value of the Company and market participants within its peer group.

As of the interim impairment test, the Company tested four of the eleven reporting units identified. One of the reporting units, in the Industrial and Infrastructure Products segment and the Company's sole business in Europe, had a carrying value in excess of the fair value due to decreased revenue projections, affected by recessionary economic conditions. Therefore, the Company initiated step two of the goodwill impairment test which involved calculating the implied fair value of goodwill by allocating the fair value of the reporting unit to the fair value of its assets and liabilities other than goodwill, calculating an implied fair value of goodwill, and comparing the implied fair value to the carrying amount of goodwill. As a result of step two of the goodwill impairment test, the Company estimated that the implied fair value of goodwill for the reporting unit was less than its carrying value by $21,040,000, for which an impairment charge was recorded as of September 30, 2013.

The Company also recognized impairment charges of $2,454,000 related to trademark intangible assets during the third quarter. The impairment charges related to the trademarks were recognized as a result of the Company's interim impairment test of indefinite-lived intangibles. $1,454,000 of the impairment charge was recorded in the Industrial and Infrastructure Products segment while the other $1,000,000 was recorded in the Residential Products segment. The fair values of the impaired trademarks were determined using an income approach consisting of the relief-from-royalty method. In addition, the Company recognized amortization expense related to the acquired intangible assets.

Annual Intangibles Impairment Testing

The Company performed its annual goodwill impairment test as of October 31, 2013, 2012, and 2011. In 2013, the Company incurred no additional impairment charges as a result of the October 31 annual test. The impairment charges recognized in 2012 resulted from the October 31 annual test. No impairment charges were incurred in 2011.

The 2013 annual impairment test examined all eleven reporting units and used similar valuation methodology as used during the interim impairment test (income and market approaches), and WACC calculation employed in the interim test. The Company based the WACC on similar market participants used in the interim test. Other assumptions used in the multiples approach such as projected revenue growth and forecasted cash flows for the Company's reporting units were also similar to those used during the interim test. A third party projection of peer companies' earnings multiples, projected revenue growth, and forecasted cash flows were obtained for the analysis as well.

The following table summarizes the WACC multiples used during the annual goodwill impairment tests performed during 2013 and 2012:


Date of Impairment Test	WACC
October 31, 2013	11.1% to 12.7%
October 31, 2012	10.7% to 13.1%

During our 2012 annual goodwill impairment test, we identified a reporting unit in the Residential Products segment with a carrying value in excess of fair value due to decreased revenue projections. Therefore, the Company initiated step two of the goodwill impairment test which involved calculating the implied fair value of goodwill by allocating the fair value of the reporting unit to the fair value of its assets and liabilities other than goodwill, calculating an implied fair value of goodwill, and comparing the implied fair value to the carrying amount of goodwill. As a result of step two of the goodwill impairment test, Company estimated that the implied fair value of goodwill for the reporting unit was less than its carrying value by $4,328,000 for the year ended December 31, 2012, which has been recorded as an impairment charge. No goodwill impairment charges were recorded in 2011 as a result of the annual test.

Acquired Intangible Assets

Acquired intangible assets consist of the following (in thousands):


	December 31, 2013				December 31, 2012
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		Estimated Useful Life
Indefinite-lived intangible assets:
Trademarks	$	45,724	$	–	$	48,774	$	–	Indefinite
Finite-lived intangible assets:
Trademarks		3,989		1,420		2,771		1,085	2 to 15 Years
Unpatented technology		24,690		6,980		24,427		5,204	5 to 20 Years
Customer relationships		54,171		28,926		53,043		24,687	5 to 16 Years
Non-compete agreements		1,937		1,408		3,207		2,598	4 to 10 Years
Backlog		1,330		1,330		1,330		1,219	1 to 2 Years
		86,117		40,064		84,778		34,793
Total acquired intangible assets	$	131,841	$	40,064	$	133,552	$	34,793

The Company recognized impairment charges related to trademark intangible assets for the years ended December 31, 2013 and 2012. The impairment charges related to the trademarks were recognized as a result of the Company's impairment test of indefinite-lived intangibles. The fair values of the impaired trademarks were determined using an income approach consisting of the relief-from-royalty method. In addition, the Company recognized amortization expense related to the acquired intangible assets.

The following table summarizes the impairment charges and acquired intangibles amortization expense for the years ended December 31 (in thousands):


		2013		2012		2011
Impairment charges	$	2,454	$	300	$	–
Amortization expense	$	6,572	$	6,671	$	6,309

Amortization expense related to acquired intangible assets for the next five years ended December 31 is estimated as follows (in thousands):


2014	$	5,739
2015	$	5,604
2016	$	5,269
2017	$	4,893
2018	$	4,328

- 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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