Sunbeam 2011 Annual Report Download - page 29

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Management’s Discussion and Analysis
Jarden Corporation Annual Report 2011
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). 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 first method
is the relief from the 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 flows generated by the asset, and discounting
those cash flows 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.
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 reflect impairment of goodwill and intangible assets in the
Company’s Branded Consumables segment. The Company did not record any impairment charges in 2010 in connection with its
annual impairment testing. As previously disclosed, during the second quarter of 2010, the Company recorded a non-cash charge of
$17.3 million to reflect impairment of goodwill and during 2010 the Company recorded a non-cash charge of $2.4 million to reflect
impairment of certain intangibles. In the fourth quarter of 2009, the Company’s annual impairment test resulted in a non-cash charge
to goodwill of $12.8 million and a non-cash charge to indefinite-lived intangibles (tradenames) of $10.1 million.
While some of the Company’s businesses experienced a revenue decline and decreased profitability in 2011, 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. As a result of the 2011 annual impairment testing, the enterprise
value of all reporting units undergoing Step 1 analyses that were not impaired exceeded their carrying value by more than 10%;
however, changes in business conditions and assumptions could potentially require future adjustments to these asset valuations.
The estimated fair values for one reporting unit and certain trade names primarily within the Branded Consumables segment,
exceeded their carrying values by a percentage that was near or slightly above the 10% threshold. The Company will continue to
monitor this reporting unit and the indefinite-lived intangible assets. Should projected cash flows or profitability not be achieved, or
should actual capital expenditures exceed current plans, estimated fair values could be reduced to below carrying values resulting
in material non-cash impairment charges. The reporting units undergoing Step 0 analyses were not deemed to have significant
negative qualitative factors that would result in it being more likely than not that the reporting units were impaired. Furthermore,
there were no changes from the prior year in any significant assumptions involved in testing goodwill and other indefinite-lived
intangible assets that were not impaired that resulted in a material change to the fair value of a reporting unit or an intangible asset.
The Company will continue to monitor its reporting units for any triggering events or other signs of impairment.
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 decreases 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 these
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 Benefit 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 the input from its actuaries and investment advisors. The pension and
postretirement obligations are measured as of December 31 for 2011 and 2010.
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