Energizer 2013 Annual Report Download - page 60

ENERGIZER HOLDINGS, INC.
(Dollars in millions, except per share data)
The Company operates in multiple jurisdictions with complex tax and regulatory environments, which are subject to
differing interpretations by the taxpayer and the taxing authorities. At times, we may take positions that management
believes are supportable, but are potentially subject to successful challenges by the appropriate taxing authority. The
Company evaluates its tax positions and establishes liabilities in accordance with guidance governing accounting for
uncertainty in income taxes. The Company reviews these tax uncertainties in light of the changing facts and
circumstances, such as the progress of tax audits, and adjusts them accordingly.
• Acquisitions, Goodwill and Intangible Assets The Company allocates the cost of an acquired business to the assets
acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess value of the
cost of an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized
as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating
results. The Company uses a variety of information sources to determine the value of acquired assets and liabilities
including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories; actuaries
for defined benefit retirement plans; and legal counsel or other experts to assess the obligations associated with legal,
environmental or other claims.
Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective
useful lives. The fair value estimates are based on historical information and on future expectations and assumptions
deemed reasonable by management, but are inherently uncertain. Determining the useful life of an intangible asset
also requires judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our
plans to continue to support and build the acquired brands. Other intangible assets are expected to have determinable
useful lives. Our assessment of intangible assets that have an indefinite life and those that have a determinable life is
based on a number of factors including the competitive environment, market share, brand history, underlying product
life cycles, operating plans and the macroeconomic environment. Our estimates of the useful lives of determinable-
lived intangible assets are primarily based on the same factors. The costs of determinable-lived intangible assets are
amortized to expense over the estimated useful life. The value of indefinite-lived intangible assets and residual
goodwill is not amortized, but is tested at least annually for impairment. See Note 5 of the Notes to Consolidated
Financial Statements.
However, future changes in the judgments, assumptions and estimates that are used in our impairment testing
including discount rates or future operating results and related cash flow projections, could result in significantly
different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or
a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment
charges that could materially affect our financial statements in any given year. The recorded value of goodwill and
intangible assets from recently acquired businesses are derived from more recent business operating plans and
macroeconomic environmental conditions and, therefore, are likely more susceptible to an adverse change that could
require an impairment charge.
During fiscal 2013, we tested goodwill for impairment for both the Household Products and Personal Care reporting
units. There were no indications of impairment of goodwill noted during this testing.
In addition, we completed impairment testing on indefinite-lived intangible assets other than goodwill, which are
trademarks/brand names used in our various product categories. No impairment was indicated as a result of this
testing. However, the indicated fair values resulting from our discounted cash flow analysis for two brands, Playtex
and Wet Ones, were relatively close to the carrying value at approximately 107% of the carrying value (approximately
$650) for the Playtex brand and approximately 109% of the carrying value (approximately $200) for the Wet Ones
brand. Key assumptions included in the testing of these brand values were a discount rate of 7.5% and a terminal
growth rate of 2.0%.
Recently Issued Accounting Standards
There are no new accounting pronouncements issued or effective that had or will have a material impact on our Consolidated
Financial Statements.
On January 31, 2013, the Financial Accounting Standards Board (FASB) issued a new accounting standard update (ASU) to
clarify the scope of disclosures about offsetting assets and liabilities. The standard limits the scope of the new balance sheet
offsetting disclosures to derivatives, repurchase agreements and securities lending transactions to the extent they are offset in
the financial statements or subject to an enforceable master netting arrangement or similar agreement. This standard will be
applied on a retrospective basis beginning on October 1, 2013 and the impact will not be material to the Company's financial
statements.
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