Sunbeam 2007 Annual Report Download - page 62

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to its consolidated financial statements and such adjustments could be material. See Note 12 of the Notes to
Consolidated Financial Statements for further information regarding taxes.
Intangible assets
The Company has significant intangible assets on its balance sheet that include goodwill, trademarks and
other intangibles fair valued in conjunction with acquisitions. The valuation and classification of these assets and
the assignment of amortizable lives involves significant judgment and the use of estimates. The testing of
unamortizable intangibles under established guidelines for impairment also requires significant use of judgment
and assumptions (such as cash flow projections, terminal values and discount rates). Changes in forecasted
operations and other assumptions could materially affect the estimated fair values. The Company’s assets are
tested and reviewed for impairment annually or more frequently if facts and circumstances warrant. Changes in
business conditions could potentially require adjustments to these asset valuations.
While some of the Company’s businesses experienced a slight revenue decline and decreased profitability in
2007, the Company believes that its long-term growth strategy supports its fair value conclusions. For both
goodwill and indefinite lived intangible assets, the recoverability of these amounts is dependent upon
achievement of the Company’s projections and the execution of key initiatives related to revenue growth and
improved profitability.
Pension and postretirement plans
The Company records annual amounts relating to its pension and postretirement plans based on calculations,
which include various actuarial assumptions, including discount rates, assumed rates of return, compensation
increases, turnover rates and health care cost trend rates. The Company reviews its actuarial assumptions on an
annual basis and makes modifications to the assumptions based on current rates and trends when it is deemed
appropriate to do so. The effect of modifications is generally deferred and amortized over future periods. The
Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based
on its experience, market conditions and input from its actuaries and investment advisors. The pension and
postretirement obligations are measured as of September 30 and December 31 for 2007 (collectively the “2007
measurement dates”). The pension and postretirement obligations are measured as of September 30 for 2006 and
2005. The pension and postretirement obligations for 2007 measured at December 31 are the obligations
resulting from the acquisitions of K2 and Pure Fishing.
The Company employs a total return investment approach for its pension and postretirement benefit plans
whereby a mix of equities and fixed income investments are used to maximize the long-term return of pension
and postretirement plan assets. The intent of this strategy is to minimize plan expenses by outperforming plan
liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan
funded status, and corporate financial condition. The investment portfolios contain a diversified blend of equity
and fixed-income investments. Furthermore, equity investments are diversified across geography and market
capitalization through investments in U.S. large-capitalization stocks, U.S. small-capitalization stocks and
international securities. Investment risk is measured and monitored on an ongoing basis through annual liability
measurements, periodic asset/liability studies and quarterly investment portfolio reviews.
The expected long-term rate of return for plan assets is based upon many factors including expected asset
allocations, historical asset returns, current and expected future market conditions, risk and active management
premiums. The prospective target asset allocation percentage for both the pension and postretirement plans is
approximately 55%-65% for equity securities, approximately 25%-40% for bonds and approximately 0%-20%
for other securities.
The weighted average expected return on plan assets assumption as of the 2007 measurement dates was
approximately 8.1% for the Company’s pension plans. The weighted average discount rate used at the 2007
measurement dates used to measure both the pension and postretirement benefit obligations was 6.12% and
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