Sunbeam 2008 Annual Report Download - page 25

the period such determination was made. Conversely, if the financial condition of its customers were to improve or its judgment regarding
their financial condition was to change positively, a reduction in the allowances may be required resulting in an increase in income in the
period such determination was made.
Allowance for inventory obsolescence
The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the
cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual mar-
ket conditions are less favorable than those projected, additional inventory write-downs may be required resulting in a charge to income in
the period such determination was made. Conversely, if actual market conditions are more favorable than those projected, a reduction in
the write down may be required resulting in an increase in income in the period such determination was made.
Income taxes
The Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely
than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its
net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination
was made.Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the deferred tax assets would increase income in the period such determination was made.
Additionally,the Company recognizes tax benefits for certain tax positions based upon judgments as to whether it is more likely than
not that a tax position will be sustained upon examination. The measurement of tax positions that meet the more-likely-than-not recogni-
tion threshold are based in part on estimates and assumptions as to be the probability of an outcome, along with estimated amounts to be
realized upon any settlement. While the Company believes the resulting tax balances at December 31, 2008 and 2007 are fairly stated based
upon these estimates, the ultimate resolution of these tax positions could result in favorable or unfavorable adjustments to its consolidated
financial statements and such adjustments could be material. See Note 12 to the consolidated financial statements for further information
regarding taxes.
Goodwill and Indefinite-Lived Intangibles
The application of the purchase method of accounting for business combinations requires the use of significant 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 prior years, the Company has significant intangible assets on its balance sheet that include goodwill and
indefinite-lived intangibles (primarily trademarks and tradenames). The Company’s goodwill and indefinite lived intangibles are tested and
reviewed for impairment annually (during the fourth quarter, which coincides with the strategic planning process), or more frequently if
facts and circumstances warrant using various valuation methods, such as the discounted cash flows and market multiple methods.
Goodwill impairment testing requires significant use of judgement and assumptions including the identification of reporting units; the
assignment of assets and liabilities to reporting units; and the estimation of future cash flows, business growth rates, terminal values and dis-
count rates. 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 assump-
tions could materially affectthe estimated fair values.Changes in business conditions could potentially require adjustments to these asset
valuations. As previously discussed, in the fourth quarter of 2008, the Company’s annual impairment test resulted in a non-cash charge to
goodwill of $172 million and a non-cash charge to indefinite-lived intangibles (tradenames) of $111 million. With the Company’s common
stock trading below historical valuation metrics in the fourth quarter, management analyzed the fair value of the reporting units as com-
pared to the Company’s market capitalization. In management’s judgment, a significant portion of the recent decline in the Company’s
stock price is related to the deterioration of macroeconomic conditions and is not reflective of the underlying cash flows of the reporting
units.The Company will continue to monitor its reporting units for any triggering events or other signs of impairment.
While some of the Company’s businesses that were not impaired as a result of the annual impairment testing experienced a revenue
decline and decreased profitability in 2008, 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 keyinitiatives related to revenue growth and improved profitability. However, changes in business condi-
tions and assumptions could potentially require future adjustments to these asset valuations.
Other Long-Lived Assets
The Company evaluates the recoverability of long-lived assets, including property, plant and equipment and amortizable intangible
assets, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment
indicators that could trigger an impairment review include significant underperformance relative to historical or projected future operating
Management’s Discussion and Analysis
Jarden Corporation Annual Report 2008
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