Sunbeam 2009 Annual Report Download - page 26

Management’s Discussion and Analysis
Jarden Corporation Annual Report 2009
resulting from overall economic weakness. Net sales in the Consumer Solutions segment declined $56.3 million or 3.0%, primarily due to
weakness in domestic sales in most product categories, primarily as a result of overall economic weakness at retail, partially offset by
increased demand and improved pricing internationally (primarily Latin America). Net sales in the Branded Consumables segment were
essentially flat on a year-over-year basis, primarily due to improved sales of Ball®and Kerr®fresh preserving products, offset by overall
weakness at retail, primarily at domestic home improvement retailers. The Process Solutions segment declined 1.4% on a year-over-year
basis, primarily due to a reduction in the pass through pricing of zinc, primarily due to a 41% decline in the average price of zinc during
2008 versus 2007, partially offset by the inclusion of the K2 monofilament business.
Cost of sales increased $363 million to $3.9 billion for 2008 versus the same period in the prior year, primarily due to the acquisitions
of K2 and Pure Fishing, partially offset by the inclusion of a $119 million adjustment in 2007 related to the purchase accounting entry for the
elimination of manufacturer’s profit in inventory related to the K2 and Pure Fishing acquisitions. The fair value of the inventory acquired was
valued at the sales price of the finished inventory, less costs to complete and a reasonable profit allowance for selling effort. Cost of sales as
a percentage of net sales for 2008 and 2007 was 72.1% and 75.5%, respectively (72.9% for 2007 excluding the charge for the elimination of
manufacturer’s profit in inventory). The improvement is primarily due to the elimination of the manufacturer’s profit in inventory in 2007,
higher margins from acquired businesses, price increases and benefits from prior continuous improvement and integration programs,
partially offset by rising commodity and transportation costs.
SG&A increased $153 million to $1.0 billion for 2008 versus the same period in the prior year. The increase was primarily due to the
acquisitions of K2 and Pure Fishing, partially offset by an incremental decrease in stock-based compensation expense in 2008 and an
incremental decrease in pension and postretirement expense in 2008, primarily the result of the curtailment and settlement of certain
of the plans.
Reorganization and acquisition-related integration costs, net, increased $10.2 million to $59.8 million in 2008 versus the same period
in the prior year. The majority of these charges relate to ongoing integration-related activities in the Outdoor Solutions segment principally
as a result of the K2 and Pure Fishing acquisitions. During 2008, the Company also recorded reorganization and acquisition-related integra-
tion costs within the Branded Consumables and Process Solutions segments that primarily relate to the consolidation of manufacturing
facilities and headcount reductions. Additionally, for 2008, the Company recorded reorganization and acquisition-related integration costs
that are primarily due to severance and the integration of certain corporate functions related to the K2 acquisition. The 2007 reorganization
and acquisition-related integration costs related primarily to the Consumer Solutions segment; there were no such costs in 2008 as this
reorganization has been completed.
In the fourth quarter of 2008, the Company’s annual impairment test resulted in a non-cash charge of $283 million to reflect impair-
ment of goodwill and intangible assets. Of this charge, $172 million related to the impairment of goodwill in the Company’s Branded
Consumables and Outdoor Solutions segments. In the Branded Consumables segment the impairment charge was recorded within the
Firelog, Lehigh and United States Playing Cards reporting units. In the Outdoor Solutions segment the impairment charge was recorded
within the Apparel and Footwear reporting unit. The impairment for these reporting units was due to a decrease in the fair value of
forecasted cash flows, reflecting the continued deterioration of macroeconomic conditions, which accelerated and became apparent during
the fourth quarter of 2008 (hereafter referred to as “continued deterioration of macroeconomic conditions”).
The Company’s annual impairment test resulted in a non-cash charge of $111 million to reflect the impairment of intangible assets
related to certain of the Company’s tradenames. The impairment charge was allocated to the Company’s reporting segments as follows:
Year Ended
(In millions) December 31, 2008
Impairment of intangibles:
Outdoor Solutions $ 11.7
Consumer Solutions 76.3
Branded Consumables 22.9
$ 110.9
In the Outdoor Solutions segment, the impairment charge recorded relates primarily to certain tradenames within this segment’s
snow sports and paintball businesses. The impairment within the Outdoor Solutions segment was due to an overall decline in the paintball
market, as well as a decrease in the fair value of forecasted cash flows, resulting from the impact that the continued deterioration of macro-
economic conditions has on such cash flows. In the Consumer Solutions segment, the impairment charge recorded relates to certain trade-
names within this segment’s small kitchen and household appliance businesses. The impairment within the Consumer Solutions segment is
primarily due to: the Company’s decision to strategically realign certain brand names; increased competition in certain markets; and the
impact of continued deterioration of macroeconomic conditions. In the Branded Consumables segment, the impairment charge recorded
relates to certain tradenames associated with this segment’s Firelog, Lehigh and United States Playing Cards businesses. The impairment
within the Branded Consumables segment was due to a decrease in the fair value of forecasted cash flows, resulting from the impact that
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