Sunbeam 2013 Annual Report Download - page 30

26 Jarden Corporation Annual Report 2013
amounts to be realized upon any settlement. While the Company believes the resulting tax balances at December31, 2013 and 2012
are fairly stated based upon these estimates, the ultimate resolution of these tax positions could result in favorable or unfavorable
adjustments to its consolidated nancial statements and such adjustments could be material. See Note 12 to the consolidated nancial
statements for further information regarding taxes.
Goodwill and Indenite-Lived Intangibles
The application of the purchase method of accounting for business combinations requires the use of signicant estimates and
assumptions in determining the fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price.
The estimates of the fair value of the assets acquired and liabilities assumed are based upon assumptions believed to be reasonable
using established valuation techniques that consider a number of factors and when appropriate, valuations performed by independent
third party appraisers.
As a result of acquisitions in current and prior years, the Company has signicant intangible assets on its balance sheet that include
goodwill and indenite-lived intangibles (primarily trademarks and tradenames). The Company’s goodwill and indenite-lived
intangibles are tested and reviewed for impairment annually (during the fourth quarter, which coincides with the Company’s planning
process), or more frequently if facts and circumstances warrant. The Company uses a qualitative approach to test goodwill for
impairment by rst assessing qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit
is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.
The qualitative (“Step 0”) approach, which was only applied to a portion of the Company’s reporting units, assesses various factors
including, in part, the macroeconomic environment, industry and market specic conditions, nancial performance, operating costs and
cost impacts, as well as issues or events specic to the reporting unit. If necessary, the rst step (“Step 1”) in the goodwill impairment
test involves comparing the fair value of each of its reporting units to the carrying value of those reporting units. If the carrying value
of a reporting unit exceeds the fair value of the reporting unit, the Company is required to proceed to the second step. In the second
step, the fair value of the reporting unit would be allocated to the assets (including unrecognized intangibles) and liabilities of the
reporting unit, with any residual representing the implied fair value of goodwill. An impairment loss would be recognized if, and to the
extent that, the carrying value of goodwill exceeded the implied value. The Company uses a qualitative approach to test indenite-lived
intangible assets for impairment by rst assessing qualitative factors to determine whether it is more-likely-than-not that the fair value
of an indenite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment
testing. The Company applied this qualitative approach to select indenite-lived intangible assets. For other indenite-lived intangible
assets, the Company proceeded directly to quantitative impairment testing.
Both qualitative and quantitative goodwill impairment testing requires signicant use of judgment and assumptions, including the
identication of reporting units; the assignment of assets and liabilities to reporting units; and the estimation of future cash ows,
business growth rates, terminal values and discount rates. The Company uses various valuation methods, such as the discounted cash
ow and market multiple methods. The income approach used is the discounted cash ow methodology and is based on ve-year cash
ow projections. The cash ows projected are analyzed on a “debt-free” basis (before cash payments to equity and interest bearing
debt investors) in order to develop an enterprise value from operations for the reporting unit. A provision is also made, based on these
projections, for the value of the reporting unit at the end of the forecast period, or terminal value. The present value of the interim
cash ows and the terminal value are determined using a selected discount rate. The market multiple methodology involves estimating
value based on the trading multiples for comparable public companies. Multiples are determined through an analysis of certain publicly
traded companies that are selected on the basis of operational and economic similarity with the business operations. Valuation
multiples are calculated for the comparable companies based on daily trading prices. A comparative analysis between the reporting
unit and the public companies forms the basis for the selection of appropriate risk-adjusted multiples. The comparative analysis
incorporates both quantitative and qualitative risk factors which relate to, among other things, the nature of the industry in which the
reporting unit and other comparable companies are engaged.

The testing of unamortizable intangibles under established guidelines for impairment also requires signicant use of judgment and
assumptions (such as cash ow projections, terminal values and discount rates). For impairment testing purposes, the fair value of
unamortizable intangibles is determined using the same method which was used for determining the initial value. The rst method is
the relief from royalty method, which estimates the value of a tradename by discounting the hypothetical avoided royalty payments to
their present value over the economic life of the asset. The second method is the excess earnings method, which estimates the value
of the intangible asset by quantifying the residual (or excess) cash ows generated by the asset, and discounting those cash ows
to the present. The excess earnings methodology requires the application of contributory asset charges. Contributory asset charges
typically include payments for the use of working capital, tangible assets and other intangible assets. Changes in forecasted operations
and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require
adjustments to these asset valuations.
The Company did not record any impairment charges in 2013 and 2012. As previously disclosed, in the fourth quarter of 2011, the
Company’s annual impairment test, in connection with fourth quarter triggering events, resulted in a non-cash charge of $43.4 million
to reect the impairment of goodwill and intangible assets in the Company’s Branded Consumables segment.
Management’s Discussion and Analysis
Jarden Corporation Annual Report 2013