Rayovac 2008 Annual Report Download - page 66

Table of Contents
Index to Financial Statements
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. An asset’s value is deemed impaired if the discounted cash flows or earnings projections generated do
not substantiate the carrying value of the asset. The estimation of such amounts requires management’s judgment with respect to revenue and expense growth
rates, changes in working capital and selection of an appropriate discount rate, as applicable. The use of different assumptions would increase or decrease
discounted future operating cash flows or earnings projections and could, therefore, change impairment determinations.
SFAS 142 requires companies to test goodwill and indefinite-lived intangible assets for impairment annually, or more often if an event or circumstance
indicates that an impairment loss may have been incurred. In Fiscal 2008 and 2007, we tested our goodwill and indefinite-lived intangible assets. As a result of
this testing, we recorded a non-cash pretax impairment charge of $867 million and $362 million in Fiscal 2008 and 2007, respectively. The $867 million
impairment charge incurred in Fiscal 2008 reflects impaired goodwill of $602 million and impaired trade name intangible assets of $265 million. The $602
million of impaired goodwill consisted of the following: (i) $426 million associated with our Global Pet Supplies reportable segment; (ii) $160 million associated
with our Home and Garden Business; and (iii) $16 million related to our Global Batteries & Personal Care reportable segment as a result of the Ningbo Exit Plan.
The $265 million of impaired trade name intangible assets consisted of the following: (i) $86 million related to our Global Batteries & Personal Care reportable
segment; (ii) $98 million related to Global Pet Supplies; and (iii) $81 million related to our Home and Garden Business. The $362 million impairment charge
incurred in Fiscal 2007 reflects $214 million of goodwill associated with our North America reporting unit, which is now part of our Global Batteries & Personal
Care reportable segment, a goodwill impairment of $124 million within the U.S. Home and Garden Business and an impairment of trade name intangible assets
of $34 million, primarily associated with our Global Batteries & Personal Care reportable segment. Future cash expenditures will not result from these
impairment charges.
We used a discounted estimated future cash flows methodology, third party valuations and negotiated sales prices to determine the fair value of our
reporting units (goodwill). Fair value of indefinite-lived intangible assets, which represent trade names, was determined using a relief from royalty methodology.
Assumptions critical to our fair value estimates were: (i) the present value factors used in determining the fair value of the reporting units and trade names or
third party indicated fair values for assets expected to be disposed; (ii) royalty rates used in our 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. We also tested
fair value for reasonableness by comparison to the total market capitalization of the Company, which includes both our equity and debt securities. 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. In light of a sustained decline in market capitalization coupled with the decline of the fair value of our debt securities, we also considered these
factors in the Fiscal 2008 annual impairment testing.
In accordance with SFAS 109, we establish valuation allowances for deferred tax assets when we estimate it is more likely than not that the tax assets will
not be realized. We base these estimates on projections of future income, including tax-planning strategies, by individual tax jurisdictions. Changes in industry
and economic conditions and the competitive environment may impact the accuracy of our projections. In accordance with SFAS 109, during each reporting
period we assess the likelihood that our deferred tax assets will be realized and determine if adjustments to the valuation allowance are appropriate. As a result of
this assessment, during Fiscal 2008 and Fiscal 2007 we recorded a non-cash deferred income tax charge of approximately $200 million and $245 million,
respectively, related to increasing the valuation allowance against our net deferred tax assets.
See Note 2(h), Significant Accounting Policies and Practices—Property, Plant and Equipment, Note 2(i), Significant Accounting Policies and
Practices—Intangible Assets, Note 4, Property, Plant and Equipment, Note 5, Assets Held for Sale, Note 6, Intangible Assets, Note 10, Income Taxes, and Note
11, Discontinued Operations, of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for more information about these
assets.
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Source: Spectrum Brands, Inc, 10-K, December 10, 2008