Sunbeam 2009 Annual Report Download - page 32

methods. Goodwill impairment testing requires significant use of judgment 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
discount rates. The testing of unamortizable intangibles under established guidelines for impairment also requires significant use of judg-
ment 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. Changes in business conditions could potentially require adjustments to these
asset valuations. As previously discussed, in the fourth quarter of 2009 and 2008, the Company’s impairment test resulted in a non-cash
charge to goodwill of $12.8 million and $172 million, respectively, and a non-cash charge to indefinite-lived intangibles (tradenames) of
$10.1 million and $111 million, respectively. In the fourth quarter of 2008, with the Company’s common stock trading below historical
valuation metrics, management analyzed the fair value of the reporting units as compared to the Company’s market capitalization and
determined that in their judgment, a significant portion that decline related to the deterioration of macroeconomic conditions and was
not reflective of the underlying cash flows of the reporting units. During 2009, the Company’s market capitalization increased approximately
220% to approximately $2.8 billion at December 31, 2009. 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 2009 impairment testing experienced a revenue
decline and decreased profitability in 2009, 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. 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
results, significant changes in the manner of use of the assets or the strategy for the overall business, significant decrease in the market value
of the assets and significant negative industry or economic trends. When the Company determines that the carrying amount of long-lived
assets may not be recoverable based upon the existence of one or more of the indicators, the assets are assessed for impairment based on
the estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The cash flows are
estimated utilizing various assumptions regarding future revenue and expenses, working capital, and proceeds from disposal. If the carrying
amount exceeds the sum of the undiscounted future cash flows, the Company discounts the future cash flows using a discount rate
required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying
value of the asset group.
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
December 31 for 2009 and 2008.
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 45% – 60% for equity securities, approximately 25% – 40% for
bonds and approximately 0% – 30% for other securities. However, in reaction to the adverse market conditions in 2008, that continued into
the first quarter of 2009, and in an effort to preserve capital, the Company has under-weighted its equity investments to the low end of the
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Management’s Discussion and Analysis
Jarden Corporation Annual Report 2009