Goodwill and Other Intangible Assets

6 Months Ended

Jun. 26, 2011

Goodwill and Other Intangible Assets

Note 3. GOODWILL AND OTHER INTANGIBLE ASSETS

We had intangible assets with a net book value of $103.1 million and $90.8 million as of June 26, 2011 and December 26, 2010, respectively.

The following table reflects the components of intangible assets as of June 26, 2011 and December 26, 2010:

(dollar amounts in thousands)


		June 26, 2011		December 26, 2010
	Amortizable Life (years)	Gross Amount	Gross Accumulated Amortization	Gross Amount	Gross Accumulated Amortization
Finite-lived intangible assets:
Customer lists	6to 20	$ 97,812	$ 47,035	$ 79,696	$ 41,226
Trade name	1to 30	31,745	18,355	29,148	16,634
Patents, license agreements	3to 14	62,960	49,038	60,410	45,048
Other	2to 6	7,259	4,343	10,701	8,320
Total amortized finite-lived intangible assets		199,776	118,771	179,955	111,228

Indefinite-lived intangible assets:
Trade name		22,140	—	22,096	—
Total identifiable intangible assets		$ 221,916	$ 118,771	$ 202,051	$ 111,228

Amortization expense for the three and six months ended June 26, 2011 was $3.0 million and $5.6 million, respectively.

Amortization expense for the three and six months ended June 27, 2010 was $3.0 million and $6.1 million, respectively.

Estimated amortization expense for each of the five succeeding years is anticipated to be:

(amounts in thousands)

2011	$ 12,163
2012	$ 11,465
2013	$ 10,303
2014	$ 9,788
2015	$ 9,614

The changes in the carrying amount of goodwill are as follows:

(amounts in thousands)

	Shrink Management Solutions	Apparel Labeling Solutions	Retail Merchandising Solutions	Total
Balance as of December 27, 2009	$ 171,878	$ 4,300	$ 67,884	$ 244,062
Acquired during the year	—	467	—	467
Purchase accounting adjustment	—	(1,077)	—	(1,077)
Translation adjustments	(6,554)	225	(5,798)	(12,127)
Balance as of December 26, 2010	$ 165,324	$ 3,915	$ 62,086	$ 231,325
Acquired during the year	—	39,850	—	39,850
Translation adjustments	6,470	56	4,961	11,487
Balance as of June 26, 2011	$ 171,794	$ 43,821	$ 67,047	$ 282,662

The following table reflects the components of goodwill as of June 26, 2011 and December 26, 2010:

(amounts in thousands)


	June 26, 2011			December 26, 2010
	Gross Amount	Accumulated Impairment Losses	Goodwill, Net	Gross Amount	Accumulated Impairment Losses	Goodwill, Net
Shrink Management Solutions	$ 226,562	$ 54,768	$ 171,794	$ 219,771	$ 54,447	$ 165,324
Apparel Labeling Solutions	63,585	19,764	43,821	23,102	19,187	3,915
Retail Merchandising Solutions	141,011	73,964	67,047	130,486	68,400	62,086
Total goodwill	$ 431,158	$ 148,496	$ 282,662	$ 373,359	$ 142,034	$ 231,325

On January 28, 2011, Checkpoint Systems, Inc. and certain of its direct subsidiaries (collectively, the "Company") entered into a Master Purchase Agreement. The Master Purchase Agreement outlines the general terms and conditions pursuant to which the Company agreed to acquire, through the acquisition of equity and/or assets, a retail apparel and footwear product identification business which designs, manufactures and sells tags and labels, brand protection, and EAS solutions/labels. The acquisition was settled on May 16, 2011 for approximately $78.7 million, net of cash acquired of $1.9 million and the assumption of debt of $4.2 million. The purchase price was funded by $39.7 million of cash from operations and $9.2 million of borrowings under our Senior Secured Credit Facility, and a payable to be settled in the third quarter of 2011 of $27.8 million for a 2010 performance based purchase accounting adjustment and other post-closing items, which includes the acquisition of the following:

·	100% of the voting equity interests of J&F International, Inc. (U.S.), Shore to Shore Far East (Hong Kong), Shore to Shore MIS (India), Shore to Shore Lacar SA (Guatemala), Adapt Identification (HK) Ltd., and W Print Europe Ltd. (UK);

·	Assets of Shore to Shore, Inc. (U.S.), Shanghai WH Printing Co. Ltd., Wing Hung (Dongguan) Printing Co., Ltd., and Wing Hung Printing Co., Ltd. (U.S.);

·	51% of the voting equity interests of Shore to Shore PVT Ltd. (Sri Lanka);

·	50% of the voting equity interests of the Cybsa Adapt SA de CV (El Salvador) joint venture. In accordance with ASC 323 "Investments—Equity Method and Joint Ventures", we have applied the Equity Method in recording this joint venture.

Included in the $27.8 million payable, which is recorded in other current liabilities on our Consolidated Balance Sheets, is $17.5 million of purchase price related to the 2010 performance of the acquired business. This amount is subject to adjustment pending final determination of the 2010 performance and could result in an additional purchase price payment of up to $6.3 million. We expect to conclude on the 2010 performance of the acquired businesses during the third quarter of 2011. After final determination of the 2010 performance including final payment amount due, an adjustment will be recorded to the purchase price and goodwill. Acquisition costs incurred in connection with the transaction are recognized within acquisition costs in the Consolidated Statement of Operations and approximate $2.0 million and $2.2 million for the three and six months ended June 26, 2011.

As the Company acquired 51% of the outstanding voting shares of Shore to Shore PVT Ltd. (Sri Lanka) in exchange for $1.7 million in cash, we have classified the non-controlling interests as equity on our Consolidated Balance Sheets as of June 26, 2011 and December 26, 2010, and presented net income attributable to non-controlling interests separately on our Consolidated Statements of Operations for the three and six months ended June 26, 2011 and June 27, 2010. The fair value of the non-controlling interest was estimated by applying a market approach. Key assumptions include control premiums associated with guideline transactions of entities deemed to be similar to Shore to Shore PVT Ltd. (Sri Lanka), and adjustments because of the lack of control that market participants would consider when measuring the fair value of the non-controlling interest.

At June 26, 2011, the financial statements reflected the preliminary allocation of the purchase price based on estimated fair values at the date of acquisition, including $22.8 million in Property, Plant, and Equipment, $7.2 million in Accounts Receivable, and $2.2 million in Inventories. This preliminary allocation resulted in acquired goodwill of $39.9 million and intangible assets of $16.2 million. The intangible assets were composed of a non-compete agreement ($0.3 million), customer lists ($15.4 million), and trade names ($0.5 million). The useful lives were 5 years for the non-compete agreement, 10 years for the customer lists, and 7.5 months for the trade names. The Company continues to evaluate certain assets and liabilities related to this business combination. Additional information, which existed as of the acquisition date but was at that time unknown to the Company, may become known during the remainder of the measurement period. Changes to amounts recorded as assets or liabilities may result in a corresponding adjustment to goodwill. Also, the allocation of the purchase price remains open for final valuation results, quantification of acquired income and non-income based tax exposures, and certain information related to deferred income taxes. The measurement period is expected to be completed by May of 2012. The tax deductible portion of the acquired goodwill will also be determined during the measurement period. The results from the acquisition date through June 26, 2011 are included in the Apparel Labeling Solutions segment and were not material to the Consolidated Financial Statements (revenues of $6.0 million and net earnings of $0.5 million).

In July 2009, the Company entered into an agreement to purchase the business of Brilliant, a China-based manufacturer of woven and printed labels, and settled the acquisition on August 14, 2009 for approximately $38.3 million, including cash acquired of $0.6 million and the assumption of debt of $19.6 million. The transaction was paid in cash and the purchase price includes the acquisition of 100% of Brilliant's voting equity interests. Acquisition costs incurred in connection with the transaction are recognized within selling, general and administrative expenses in the Consolidated Statement of Operations and approximate $0.3 million during the first six months of 2010 without a comparable charge in 2011.

During the second quarter of 2010 we finalized our purchase accounting related to income taxes for the Brilliant acquisition and as a result we recorded a decrease to goodwill of $1.1 million. As of June 27, 2010, the financial statements reflect the final allocations of the purchase price based on the estimated fair values at the date of acquisition.

We perform an assessment of goodwill by comparing each individual reporting unit's carrying amount of net assets, including goodwill, to their fair value at least annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Future assessments could result in impairment charges, which would be accounted for as an operating expense.

- 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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