Rayovac 2004 Annual Report Download - page 75

RAYOVAC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
During 2004, the Company changed the annual impairment testing date for goodwill and trade name
intangibles from October 1 to August 31 of each year. The August 31 date is preferable as it provides the
Company with more time prior to the fiscal year-end to complete impairment testing and to report the impact of
the impairment tests in its annual Form 10-K filing.
Intangibles with Definite or Estimable Useful Lives
The Company assesses the recoverability of intangible assets with definite or estimable useful lives in
accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets by determining
whether the carrying value can be recovered through projected undiscounted future cash flows. If projected
undiscounted future cash flows indicate that the unamortized carrying value of intangible assets with finite useful
lives will not be recovered, an adjustment would be made to reduce the carrying value to an amount equal to
projected future cash flows discounted at the Company’s incremental borrowing rate. The cash flow projections
used are based on trends of historical performance and management’s estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Impairment reviews are conducted at the judgment of management when it believes that a change in
circumstances in the business or external factors warrants a review. Circumstances such as the discontinuation of
a product or product line, a sudden or consistent decline in the sales forecast for a product, changes in technology
or in the way an asset is being used, a history of operating or cash flow losses, or an adverse change in legal
factors or in the business climate, among others, may trigger an impairment review. The Company’s initial
impairment review to determine if an impairment test is required is based on an undiscounted cash flow analysis
for asset groups at the lowest level for which identifiable cash flows exist. The analysis requires management
judgment with respect to changes in technology, the continued success of product lines and future volume,
revenue and expense growth rates, and discount rates. There were no impairment charges for definite-lived
intangibles recorded during 2004, 2003 or 2002. (See also Intangible Assets, Note 5).
(j) Debt Issuance Costs
Debt issuance costs are capitalized and amortized to interest expense over the lives of the related debt
agreements.
(k) Accounts Payable
Included in accounts payable are bank overdrafts on disbursement accounts that were replenished when checks
were presented for payment.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
(m) Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiaries are translated at the rate of exchange existing at year-
end, with revenues, expenses, and cash flows translated at the average of the monthly exchange rates.
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