Goodwill and Other Intangible Assets | 9 Months Ended |
Sep. 28, 2013 |
Goodwill and Intangible Assets Disclosure [Abstract] | ' |
Goodwill and Other Intangible Assets | ' |
Goodwill and Other Intangible Assets |
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The Corporation has multiple operating segments which are comprised of multiple components that represent the lowest level for which discrete financial information is available and the operating results of that component are regularly reviewed by management. The Corporation aggregates certain components that share similar economic similarities and that are vertically integrated within the same operating segment into reporting units |
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In the third quarter, the Corporation determined that the expected operating results for certain of its reporting units were projected to be substantially lower than previous forecasts. Given this information, the Corporation conducted its annual impairment test and determined that impairment existed for three reporting units. The preliminary impairment is $51,646 for goodwill and other assets and has been recorded in the condensed consolidated statements of operations within Asset Impairment. The Corporation recorded a pre-tax non-cash charge during the third quarter in the amount of $31,837 related to the OEM Solutions segment and $19,809 million related to the Symmetry Surgical segment. The impairment in OEM Solutions consisted of goodwill, trade names, customer relationships, and property and equipment of $29,200, $953, $1,403, and $281, respectively, and was primarily driven by the reduced outlook on revenues and profitability related to instrument production for customer capital expenditures related to product launches and instrument replenishment, as well as operational issues at the Clamonta, Ltd. subsidiary, which services the Aerospace industry. The impairment in Symmetry Surgical consisted of goodwill, tradenames and in-process research and development of $18,278, $921, and $610, respectively, and was primarily driven by lower revenue due to the previously disclosed integration challenges related to the 2011 acquisition of the surgical instruments business of Codman & Shurtleff, Inc. ("Codman") which the Corporation has not recovered from as quickly as previously expected. |
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The Corporation will finalize the estimated impairment charge during the fourth quarter of fiscal year 2013. The Corporation is in process of finalizing the appraisals of its reporting units, intangible assets, property, plant and equipment and other assets and liabilities. |
The Corporation determines the fair value of intangible assets using an income based approach. The approach calculates fair value by estimating the after-tax cash flows attributable to the asset and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. The calculated fair value is compared to the carrying value to determine if any impairment exists. |
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To derive the fair value of the reporting units, as required in step one of the impairment test, the Corporation used the income approach, specifically the discounted cash flow method, to determine the fair value of each reporting units and the associated amount of the impairment charges. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting these after-tax cash flows to a present value using a risk-adjusted discount rate. This methodology is consistent with how the Corporation estimates the fair value of its reporting units during its annual goodwill and indefinite lived intangible asset impairment tests. Inputs used to fair value the Corporation's reporting units are considered Level 3 inputs of the fair value hierarchy and include the following: |
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• | The Corporation's financial projections for its reporting units are based on management's assessment of macroeconomic variables, industry trends and market opportunities, as well as the Corporation's strategic objectives and future growth plans. Revenue growth rates assumed for each of the Corporation’s reporting units where impairment was recognized were approximately 4-34% for 2014 and 2-8% for 2015 and beyond. | | | | | | | | | | | | |
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• | The discount rate used to measure the present value of the projected future cash flows is set using a weighted-average cost of capital method that considers market and industry data, as well as the Corporation's specific risk factors that are likely to be considered by a market participant. The weighted-average cost of capital is the Corporation's estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. Discount rates used for each of the Corporation’s reporting units where impairment was recognized were approximately 12.5%, 15.8% and 12.5%. | | | | | | | | | | | | |
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For Level 3 measurements, significant increases or decreases in long-term growth rates or discount rates in isolation or in combination could result in a significantly lower or higher fair value measurement. |
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In the second step, the Corporation assigned the reporting unit's fair value to all of its assets and liabilities, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit were being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment charge. This allocation process was performed only for the purposes of measuring the goodwill impairment and not to adjust the carrying values of the recognized assets and liabilities. Based on the results of this testing, the Corporation's OEM Solutions reporting segment impaired goodwill for $29,200, while the Corporation’s Symmetry Surgical reporting segment impaired goodwill for $18,278. |
Prior to performing the annual goodwill impairment tests for the reporting units whom failed step 1, the Corporation tested long-lived assets to be held and used for impairment on an undiscounted cash flow basis. Based on the results of this testing, the Corporation's OEM Solutions reporting segment impaired trade names, customer relationships, and property and equipment of $953, $1,403, and $281, respectively, while the Corporation’s Symmetry Surgical reporting segment impaired tradenames and in-process research and development of $921, and $610, respectively. |
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As of September 28, 2013, the balances of intangible assets, other than goodwill, were as follows: |
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| Weighted-Average | | Gross | | | | Net |
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| Amortization | | Intangible | | Accumulated | | Intangible |
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| Period | | Assets | | Amortization | | Assets |
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| (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) |
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Acquired technology and patents | 11 years | | $ | 1,730 | | | $ | (1,143 | ) | | $ | 587 | |
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Acquired customers | 19 years | | 123,946 | | | (26,074 | ) | | 97,872 | |
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Intangible assets subject to amortization | 19 years | | 125,676 | | | (27,217 | ) | | 98,459 | |
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Proprietary processes | Indefinite | | | | | | | 3,577 | |
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Trademarks | Indefinite | | | | | | | 5,139 | |
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Indefinite-lived intangible assets, other than goodwill | | | | | | | | 8,716 | |
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Total | | | | | | | | $ | 107,175 | |
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As of December 29, 2012, the balances of intangible assets, other than goodwill, were as follows: |
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| Weighted-Average | | Gross | | | | Net |
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| Amortization | | Intangible | | Accumulated | | Intangible |
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| Period | | Assets | | Amortization | | Assets |
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Acquired technology and patents | 12 years | | $ | 2,161 | | | $ | (1,467 | ) | | $ | 694 | |
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Acquired customers | 19 years | | 126,481 | | | (22,027 | ) | | 104,454 | |
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Other | 17 years | | 1,421 | | | (414 | ) | | 1,007 | |
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Intangible assets subject to amortization | 19 years | | 130,063 | | | (23,908 | ) | | 106,155 | |
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Proprietary processes | Indefinite | | | | | | | 3,578 | |
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In process research and development | Indefinite | | | | | | | 610 | |
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Trademarks | Indefinite | | | | | | | 6,060 | |
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Indefinite-lived intangible assets, other than goodwill | | | | | | | | 10,248 | |
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Total | | | | | | | | $ | 116,403 | |
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Annual intangible asset amortization expense is estimated to approximate $6,900 for each of the next 5 fiscal years. |
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The reconciliation of the beginning and ending carrying amounts of goodwill are as follows: |
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Balance as of December 31, 2011 | $ | 229,112 | | | | | | | | | | |
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| Adjustment to goodwill | (402 | ) | | | | | | | | | |
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| Effects of foreign currency | 424 | | | | | | | | | | |
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Balance as of December 29, 2012 | $ | 229,134 | | | | | | | | | | |
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| Impairment of goodwill | (47,479 | ) | | | | | | | | | |
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| Effects of foreign currency | 218 | | | | | | | | | | |
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Balance as of September 28, 2013 | $ | 181,873 | | | | | | | | | | |
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