Goodwill and Identifiable Intangible Assets

9 Months Ended

Sep. 30, 2012

Goodwill and Identifiable Intangible Assets

(8) Goodwill and Identifiable Intangible Assets

Goodwill

The following table shows our goodwill balances by our segment reporting structure.


	Carrying Value at December 31, 2011		Purchase Price Adjustments			Impact of Foreign Currency Translation		Goodwill Impairment			Carrying Value at September 30, 2012
Food Packaging	$	391.7	$	—		$	0.7	$	—		$	392.4
Food Solutions		147.9		—			0.3		—			148.2
Protective Packaging		1,260.0		—			2.2		—			1,262.2
Diversey		2,252.7		38.2	(1)		13.0		(1,145.3	)		1,158.6
Other category		157.3		(1.6	)		0.3		—			156.0

Total	$	4,209.6	$	36.6		$	16.5	$	(1,145.3	)	$	3,117.4

(1)

Represents the purchase accounting adjustments related to the Diversey acquisition primarily reflecting changes in estimates during the measurement period related to certain legal contingencies that existed as of the acquisition date of October 3, 2011. These adjustments are not considered material to the carrying amount of goodwill or the other offsetting balance sheet line items and these adjustments had no impact to our condensed consolidated statement of operations in 2012. Therefore, we did not revise our previously reported consolidated financial statements for these adjustments.

We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The goodwill impairment test involves a two-step process. In the first step, we compare the fair value of each of our reporting units to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, we must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit’s fair value is allocated to all of the assets and liabilities of the reporting unit, 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 was 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 loss.

The reporting units for the legacy Sealed Air business are consistent with the units identified in Note 7 of our 2011 Annual Report. The reporting units for the Diversey segment were defined by the regional geographic businesses previously reported by Diversey before our acquisition of Diversey on October 3, 2011.

During the third quarter of 2012, we determined that sufficient indicators of potential impairment existed to require an interim goodwill impairment analysis for the North America, Europe and Latin America reporting units of our Diversey segment. These indicators included the recent business performance of those reporting units, combined with the long-term market conditions and business trends within those regions.

We estimated the fair value of these three reporting units using a weighting of fair values derived from the income approach and the market approach. Under the income approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of revenue and earnings derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.

Due to the complexity and the effort required to estimate the fair value of the reporting units in step one of the impairment test and to estimate the fair value of all assets and liabilities of the reporting units in the second step of the test, the fair value estimates were derived based on preliminary assumptions and analyses that are subject to change. Based on our preliminary analyses, the implied fair value of goodwill was substantially lower than the carrying value of goodwill for the three reporting units of the Diversey segment. As a result, we recorded our best estimate of $1.1 billion for the goodwill impairment charge in the three months ended September 30, 2012, which is included in impairment of goodwill and other intangible assets in the Condensed consolidated statements of operations. Any adjustments to the estimated impairment loss following the completion of the measurement of the impairment will be recorded in the fourth quarter of 2012.

During the fourth quarter of 2012, we will perform our annual goodwill impairment review for all of our reporting units as of October 1, 2012. If there are changes in our stock price, or significant changes in the business climate or operating results of our reporting units, we may incur additional goodwill impairment charges.

Identifiable Intangible Assets

The following tables summarize our identifiable intangible assets with definite and indefinite useful lives.


	September 30, 2012										December 31, 2011
	Gross Carrying Value		Accumulated Amortization			Impairment (1)			Net		Gross Carrying Value		Accumulated Amortization			Net
Customer relationships	$	965.1	$	(92.0	)		—		$	873.1	$	960.2	$	(36.6	)	$	923.6
Trademarks and trade names		882.3		(0.9	)		(189.0	)		692.4		882.3		(0.8	)		881.5
Technology		242.3		(67.1	)		—			175.2		229.9		(33.4	)		196.5
Contracts		44.3		(12.6	)		—			31.7		40.2		(6.1	)		34.1

Total	$	2,134.0	$	(172.6	)	$	(189.0	)	$	1,772.4	$	2,112.6	$	(76.9	)	$	2,035.7

(1)

During the third quarter of 2012, we determined that sufficient indicators also existed to require an interim impairment review of our trademarks and trade names. Based on our preliminary analysis, the fair value of the Diversey trademark was lower than the carrying value. As a result, we recorded an impairment of $189 million ($117 million, net of taxes), which is included in impairment of goodwill and other intangible assets on the condensed consolidated statements of operations in the three and nine months ended September 30, 2012.

These intangible assets include $714 million of intangible assets that we have determined to have indefinite useful lives, which primarily include $692 million of trademarks and trade names acquired in connection with the acquisition of Diversey and $22 million of in-process research and development primarily acquired in an acquisition in 2010.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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