Rayovac 2010 Annual Report Download - page 122

SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
Plant and equipment held under capital leases are amortized on a straight-line basis over the shorter of the
lease term or estimated useful life of the asset.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The Company evaluates recoverability of
assets to be held and used by comparing the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(i) Intangible Assets
Intangible assets are recorded at cost or at fair value if acquired in a purchase business combination. In
connection with fresh-start reporting, Intangible Assets were recorded at their estimated fair value on August 30,
2009. Customer lists, proprietary technology and certain trade name intangibles are amortized, using the straight-
line method, over their estimated useful lives of approximately 4 to 20 years. Excess of cost over fair value of net
assets acquired (goodwill) and indefinite-lived intangible assets (certain trade name intangibles) are not
amortized. Goodwill is tested for impairment at least annually, at the reporting unit level with such groupings
being consistent with the Company’s reportable segments. If impairment is indicated, a write-down to fair value
(normally measured by discounting estimated future cash flows) is recorded. Indefinite-lived trade name
intangibles are tested for impairment at least annually by comparing the fair value, determined using a relief from
royalty methodology, with the carrying value. Any excess of carrying value over fair value is recognized as an
impairment loss in income from operations. ASC Topic 350: “Intangibles-Goodwill and Other,” (“ASC 350”)
requires that goodwill and indefinite-lived intangible assets be tested for impairment annually, or more often if an
event or circumstance indicates that an impairment loss may have been incurred. During Fiscal 2010, the period
from October 1, 2008 through August 30, 2009 and Fiscal 2008, the Company’s goodwill and trade name
intangibles were tested for impairment as of the Company’s August financial period end, the annual testing date
for the Company, as well as certain interim periods where an event or circumstance occurred that indicated an
impairment loss may have been incurred.
Intangibles with Indefinite Lives
In accordance with ASC 350, the Company conducts impairment testing on the Company’s goodwill. To
determine fair value during Fiscal 2010, the period from October 1, 2008 through August 30, 2009 and Fiscal
2008 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) projected average revenue growth rates used in the reporting unit; and
(iii) 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 ASC 350, 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.
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