Facility Rationalization and Impairment Charges - Band Segment

9 Months Ended

Sep. 30, 2011

Facility Rationalization and Impairment Charges - Band Segment

Facility Rationalization and Impairment Charges - Band Segment

(9) Facility Rationalization and Impairment Charges — Band Segment

As discussed in Note 6, our band division had an indicator of impairment when we conducted our annual impairment testing. As a result, we were required to conduct a detailed analysis of our long-lived assets to determine whether their recoverability was impaired. Recoverability of these assets is determined by comparing forecasted undiscounted net cash flows for the asset groups to their respective carrying values. Our woodwind manufacturing facility in Elkhart, Indiana produces primarily student instruments, which typically generate lower margins. Despite the implementation of price increases on July 1, the recent change from using certain sourced components to manufacturing these components in-house has resulted in anticipated reduction in future gross margins. We believe these margins are insufficient to recover the book value of the property, plant, and equipment associated with that production. Accordingly, we recorded a $1.1 million impairment charge related to property, plant, and equipment as a component of operating expenses during the third quarter of 2011.

During the second quarter of 2011, we determined that the book value of our former manufacturing facility in Elkhorn, Wisconsin exceeded the fair value. Accordingly, we recorded a facility impairment charge of $0.2 million as a component of operating expenses. This facility, which has a remaining book value of less than $0.1 million, is included in other assets and is being held for sale.

Our real estate and equipment assets were valued using either quoted prices for specific assets or management-estimated market prices for similar assets.

During the first quarter of 2012, we intend to close our tuned percussion instrument manufacturing facility located in LaGrange, Illinois and consolidate the production into our other percussion facility in Monroe, North Carolina. As a result of this pending closure, we recorded charges of $0.4 million in severance and related expenses during the first quarter of 2011 as a component of cost of goods sold. We currently do not expect to incur any additional severance expenses during the remainder of 2011.

The severance liability and related activity associated with this plant closure is as follows:

Facility rationalization severance liability:
Balance at January 1, 2011	$	—
Additions charged to cost of sales	417
Payments	—
Balance, September 30, 2011	$	417

Although our plant closure process has yet to be completed, we do not expect impairment charges or equipment relocation costs, if any, to be material.