Rayovac 2008 Annual Report Download - page 137

Table of Contents
Index to Financial Statements
SPECTRUM BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
Intangibles with Indefinite Lives
In accordance with SFAS 142, the Company conducts impairment testing on the Company’s goodwill. To determine fair value the Company used the
discounted estimated future cash flows methodology, third party valuations and negotiated sales prices. Assumptions critical to the Company’s fair value
estimates under the discounted estimated future cash flows methodology are: (i) the present value factors used in determining the fair value of the reporting units
and trade names; (ii) royalty rates used in the Company’s trade name valuations; (iii) projected average revenue growth rates used in the reporting unit and trade
name models; and (iv) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic
conditions and expectations of management and will change in the future based on period specific facts and circumstances. The Company also tested fair value
for reasonableness by comparison to the total market capitalization of the Company, which includes both its equity and debt securities. In addition, in accordance
with SFAS 142, as part of the Company’s annual impairment testing, the Company tested its indefinite-lived trade name intangible assets for impairment by
comparing the carrying amount of such trade names to their respective fair values. Fair value was determined using a relief from royalty methodology.
Assumptions critical to the Company’s fair value estimates under the relief from royalty methodology were: (i) royalty rates; and (ii) projected average revenue
growth rates.
In connection with its annual goodwill impairment testing in Fiscal 2008 the Company first compared the fair value of its reporting units with their
carrying amounts, including goodwill. This first step indicated that the fair value of the Company’s Global Pet Supplies and Home and Garden Business was less
than the Company’s carrying amount of those reporting units and, accordingly, further testing of goodwill was required to determine the impairment charge
required by SFAS 142. Accordingly, the Company then compared the carrying amount of the Global Pet Supplies and the Home and Garden Business goodwill
to the respective implied fair value of their goodwill. The carrying amounts of the Global Pet Supplies and the Home and Garden Business goodwill exceeded
their implied fair values and, therefore, during Fiscal 2008 the Company recorded a non-cash pretax impairment charge equal to the excess of the carrying
amount of the respective reporting unit’s goodwill over the implied fair value of such goodwill of which $270,811 related to Global Pet Supplies and $49,801
related to the Home and Garden Business. In connection with the Company’s annual goodwill impairment testing performed during Fiscal 2007 the first step of
such testing indicated that the fair value of the Company’s Global Batteries and Personal Care and Global Pet Supplies reporting segments were in excess of their
carrying amounts and, accordingly, no further testing of goodwill was required. However, as more fully discussed in Note 1, Description of Business, in Fiscal
2007 the Company’s Home and Garden Business had been designated as a discontinued operation and classified as an asset held for sale. Therefore, in
accordance with SFAS 144, long-lived assets to be disposed of by sale are recorded at the lower of their carrying value or fair value less costs to sell.
Accordingly, the Company recorded a non-cash pretax charge equal to the excess of the carrying amount of the Home and Garden Business goodwill over the
implied fair value of such goodwill of approximately $124,013. In connection with the Company’s annual goodwill impairment testing performed during Fiscal
2006 the first step of such testing indicated that the fair value of the Company’s Global Pet Supplies and the Latin America reporting unit, which is now included
in the Global Batteries and Personal Care reportable segment, was less than the Company’s carrying amount of those reporting units and, accordingly, further
testing of goodwill was required to determine the impairment charge required by SFAS 142. Accordingly, the Company then compared the carrying amount of
the Global Pet Supplies and the Latin America reporting unit goodwill to the respective implied fair value of their goodwill. The carrying amounts of the Global
Pet Supplies and the Latin America reporting unit goodwill exceeded their implied fair values and, therefore, during Fiscal 2006 the Company recorded a
non-cash pretax impairment charge equal to the excess of the carrying amount of the respective reporting unit’s goodwill over the implied fair value of such
goodwill of which $235,389 related to Global Pet Supplies and $117,489 related to the Latin America reporting unit.
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008