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GOODWILL, RESTRUCTURING AND OTHER INTANGIBLE ASSETS | 9 Months Ended
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Sep. 30, 2013
GOODWILL, RESTRUCTURING AND OTHER INTANGIBLE ASSETS |
GOODWILL, RESTRUCTURING AND OTHER INTANGIBLE ASSETS | 6. GOODWILL, RESTRUCTURING AND OTHER INTANGIBLE ASSETS Our intangible assets consist of goodwill and other intangible assets. Goodwill is the excess of the cost of an acquired entity over the fair value of tangible and intangible assets (including customer lists, trade names and technology) acquired and liabilities assumed under purchase accounting for business combinations. We acquired substantial intangible assets related to the Merged Business, including $1.5 billion in goodwill, $1.1 billion in customer relationships, $14.9 million in technology and $6.0 million in product trade names. These amounts are preliminary and are based on the preliminary purchase price allocation of the fair values of the acquired assets and liabilities assumed as of the closing date of the Merger, as further described below. Valuation: The carrying values of our goodwill and indefinite-lived intangible assets are tested for impairment annually in the fourth quarter, using a measurement date of October 1. In addition, we evaluate the carrying value of these assets for impairment between annual impairment tests if an event occurs or circumstances change that would indicate the carrying amounts may be impaired. Such events and indicators may include, without limitation, significant declines in industries in which our products are used, significant changes in the estimated future cash flows of our reporting units, significant changes in capital market conditions and significant changes in our market capitalization. Impairment testing for goodwill is a two-step test performed at a reporting unit level. The first step of the impairment analysis involves comparing the fair value of the reporting unit to its book value, including goodwill. If the fair value of the reporting unit exceeds the book value, goodwill is not considered impaired. If the book value exceeds the fair value, the second step of the impairment analysis is performed, in which we measure the amount of impairment. Our goodwill evaluations utilized discounted cash flow analyses and market multiple analyses in estimating fair value. The weighting of the discounted cash flow and market approaches varies by each reporting unit based on factors specific to each reporting unit. Inherent in our fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market conditions, overall economic conditions and our strategic operational plans with regard to our business units. In addition, to the extent significant changes occur in market conditions, overall economic conditions or our strategic operational plan, it is possible that goodwill not currently impaired, may become impaired in the future. We have two segments that contain reporting units with goodwill and intangible assets: our chlorovinyls segment includes goodwill in its chlor-alkali and derivatives and compound reporting units and our building products segment includes goodwill primarily in its window and door profiles and siding reporting units. In the three months ended September 30, 2013 we concluded that an interim test for the impairment of goodwill and other intangible assets was necessary in our window and door profiles reporting unit. We conducted this impairment test due, primarily to the prolonged downturn in the North American housing and construction markets and continued pricing declines, and the expected impact of those declines on projected cash flows on the window and door profiles reporting unit. The window and door profiles reporting unit fair value was estimated using the discounted cash flow approach and market approach. We estimated our future discounted cash flows based on our actual results during the nine months ended September 30, 2013, as compared to our projections for such period. The cash flow approach assumed a gradual increase in financial performance, based on a housing market recovery in the United States, and a discount rate of approximately 15 percent. The window and door profiles reporting unit's future earnings are significantly influenced by the North American housing and construction markets. Our market approaches considered market multiples of peer companies as adjusted and applicable to our window and door profiles reporting unit. Based on the preliminary results of our interim evaluation, we recorded a non-cash impairment charge to write-down goodwill and other intangible assets in the window and door profiles reporting unit by $24.9 million in the nine months ended September 30, 2013. The write-down included $18.2 million for goodwill, $3.1 million for trade names and $3.6 million for customer relationship assets. We are currently in the process of finalizing the fair value of our window and door profiles reporting unit's assets and liabilities, and therefore the $18.2 million goodwill charge was recorded as an estimate. We expect to complete our analysis in the fourth quarter of 2013. None of our other reporting units showed indications of impairment that would have required an interim evaluation of their goodwill or other indefinite-lived intangible assets. We will test our other reporting units with goodwill and other indefinite-lived intangible assets in the fourth quarter in accordance with our annual October 1 impairment testing. Goodwill. During the nine months ended September 30, 2013, we preliminarily allocated the fair values of assets acquired and liabilities of the Merged Business assumed in the Transactions, which are subject to change. The following table provides the detail of the changes made to goodwill during the nine months ended September 30, 2013, including $18.2 million of goodwill impairment charges for our window and door profiles reporting unit.
(In millions) |  | Chlorovinyls |  | Building Products |  | Total |
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Gross goodwill at January 1, 2013 |  | $ | 245.4 |  | $ | 159.5 |  | $ | 404.9 |
Accumulated impairment losses |  |  | (55.5 | ) |  | (132.2 | ) |  | (187.7 | )
Net goodwill at January 1, 2013 |  | $ | 189.9 |  | $ | 27.3 |  | $ | 217.2 |
Gross goodwill at January 1, 2013 |  | $ | 245.4 |  | $ | 159.5 |  | $ | 404.9 |
Preliminary addition from the Transactions |  |  | 1,526.2 |  |  | - |  |  | 1,526.2 |
Foreign currency translation adjustment |  |  | (5.2 | ) |  | - |  |  | (5.2 | )
Gross goodwill at September 30, 2013 |  |  | 1,766.4 |  |  | 159.5 |  |  | 1,925.9 |
Accumulated impairment losses |  |  | (55.5 | ) |  | (150.4 | ) |  | (205.9 | )
Net goodwill at September 30, 2013 |  | $ | 1,710.9 |  | $ | 9.1 |  | $ | 1,720.0 |
Restructuring: In September 2013, we initiated a restructuring plan in our building products segment consisting of various cost saving initiatives, including the reduction of overhead and plant labor, and the consolidation of various plants, primarily in the window and door profiles reporting unit, to improve utilization and efficiencies. During the three and nine months ended September 30, 2013, we recorded a $2.9 million restructuring charge in our building products segment that is included in Transaction related costs and other, net in the condensed consolidated statements of income. Indefinite-lived intangible assets. Our indefinite-lived intangible assets consisted only of certain trade names with a carrying value of $6.0 million and $9.1 million at September 30, 2013 and December 31, 2012, respectively. The variance between period end dates is due to $3.1 million of impairment charges recorded in the third quarter of 2013 for our window and door profiles reporting unit and the fluctuations in the Canadian dollar exchange rate. Definite-lived intangible assets. At September 30, 2013 and December 31, 2012, we had definite-lived intangible assets in our building products segment that related to customer relationships and technology. In the acquisition of the Merged Business, we acquired definite-lived intangible assets in our chlorovinyls segments. The preliminary values of these assets acquired are $1.1 billion for customer relationships, $14.9 million for technology and $6.0 million for trade names. There were no definite-lived intangible assets in our chlorovinyls segment as of December 31, 2012. At September 30, 2013 and December 31, 2012 there were no definite-lived intangible assets in our aromatics segment. The following table provides the definite-lived intangible assets, by reportable segment, as of September 30, 2013 and December 31, 2012, including impairment charges recorded for our window and door profiles reporting unit.
|  | Chlorovinyls |  | Building Products |  | Total |
--- | --- | --- | --- | --- | --- | --- | ---
(In millions) |  | September 30, 2013 |  | September 30, 2013 |  | December 31, 2012 |  | September 30, 2013 |  | December 31, 2012 |
Gross carrying amounts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  | $ | 1,128.8 |  | $ | 35.2 |  | $ | 35.2 |  | $ | 1,164.0 |  | $ | 35.2 |
Trade names |  |  | 6.0 |  |  | - |  |  | - |  |  | 6.0 |  |  | - |
Technology |  |  | 14.9 |  |  | 17.4 |  |  | 17.4 |  |  | 32.3 |  |  | 17.4 |
Total |  |  | 1,149.7 |  |  | 52.6 |  |  | 52.6 |  |  | 1,202.3 |  |  | 52.6 |
Accumulated impairment charges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  |  | - |  |  | (3.6 | ) |  | - |  |  | (3.6 | ) |  | - |
Total |  |  | - |  |  | (3.6 | ) |  | - |  |  | (3.6 | ) |  | - |
Accumulated amortization: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  |  | (41.8 | ) |  | (10.1 | ) |  | (8.7 | ) |  | (51.9 | ) |  | (8.7 | )
Trade names |  |  | (0.2 | ) |  | - |  |  | - |  |  | (0.2 | ) |  | - |
Technology |  |  | (0.5 | ) |  | (10.7 | ) |  | (9.6 | ) |  | (11.2 | ) |  | (9.6 | )
Total |  |  | (42.5 | ) |  | (20.8 | ) |  | (18.3 | ) |  | (63.3 | ) |  | (18.3 | )
Foreign currency translation adjustment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  |  | (1.7 | ) |  | - |  |  | - |  |  | (1.7 | ) |  | - |
Total |  |  | (1.7 | ) |  | - |  |  | - |  |  | (1.7 | ) |  | - |
Net carrying amounts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationships |  |  | 1,085.3 |  |  | 21.5 |  |  | 26.5 |  |  | 1,106.8 |  |  | 26.5 |
Trade names |  |  | 5.8 |  |  | - |  |  | - |  |  | 5.8 |  |  | - |
Technology |  |  | 14.4 |  |  | 6.7 |  |  | 7.8 |  |  | 21.1 |  |  | 7.8 |
Total |  | $ | 1,105.5 |  | $ | 28.2 |  | $ | 34.3 |  | $ | 1,133.7 |  | $ | 34.3 |
The weighted average estimated useful life remaining for customer relationships, definite-lived trade names and technology is approximately 17 years, 16 years, and 16 years, respectively. Amortization expense for the definite-lived intangible assets was $15.2 million and $0.8 million for the three months ended September 30, 2013 and 2012, respectively and $45.0 million and $1.7 million for the nine month periods ended September 30, 2013 and 2012, respectively. Total definite-lived intangible assets estimated annual amortization expense for the next five fiscal years is approximately $66.8 million per year.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16323-109275 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=14024403&loc=d3e13816-109267 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16373-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=26713463&loc=d3e16265-109275 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=14024403&loc=d3e13854-109267 + Details
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