Rayovac 2008 Annual Report Download - page 139

Table of Contents
Index to Financial Statements
SPECTRUM BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
occurred in January 2007. The Company first compared the fair value of its reporting units with the respective carrying amounts, including goodwill. This first
step indicated that the fair value of the Company’s North America geographic reporting unit, which is now included in the Global Batteries & Personal Care
reportable segment, was less than the Company’s North America reporting unit’s carrying amount and, accordingly, further testing of goodwill was required to
determine the impairment charge. Accordingly, the Company then compared the carrying amount of the North America reporting unit’s goodwill against the
implied fair value of such goodwill. The carrying amount of the North America reporting unit’s goodwill exceeded its implied fair value and, therefore, during
Fiscal 2007 the Company recorded a non-cash pretax impairment charge equal to the excess of the carrying amount of the reporting unit’s goodwill over the
implied fair value of such goodwill of approximately $214,039. In addition, during the second quarter of Fiscal 2007, the Company concluded that the implied
fair values of its trade name intangible assets were in excess of the carrying amounts of those assets and, accordingly, no impairment of trade name intangibles
was recorded.
The above impairments of goodwill and trade name intangible assets is primarily attributed to lower current and forecasted profits, reflecting more
conservative growth rates versus those assumed by the Company at the time of acquisition, as well as due to a sustained decline in the total market capitalization
of the Company.
During the third quarter of Fiscal 2008, the Company developed and initiated a plan to curtail manufacturing operations at its Ningbo Baowang (“Ningbo”)
battery manufacturing facility in China. The Company expects manufacturing operations at Ningbo to cease by December 31, 2008. In connection with the
Company’s strategy to exit operations at Ningbo, the Company recorded a non-cash pretax charge of $16,193 to reduce the carrying value of goodwill related to
Ningbo.
The recognition of the $866,934, $362,452 and $432,978 non-cash impairment of goodwill and trade name intangible assets during Fiscal 2008, 2007 and
2006, respectively, has been recorded as a separate component of Operating expenses and has had a material negative effect on the Company’s financial
condition and results of operations during Fiscal 2008, 2007 and 2006. These impairments will not result in future cash expenditures.
Intangibles with Definite or Estimable Useful Lives
The triggering events discussed above under SFAS 142 also indicate a triggering event in accordance with SFAS 144. Management conducted an analysis
in accordance with SFAS 144 of intangibles with definite or estimable useful lives in conjunction with the SFAS 142 testing of intangibles with indefinite lives.
The Company assesses the recoverability of intangible assets with definite or estimable useful lives in accordance with SFAS 144 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
134
Source: Spectrum Brands, Inc, 10-K, December 10, 2008