Rayovac 2010 Annual Report Download - page 90

Valuation of Assets and Asset Impairment
We evaluate certain long-lived assets to be held and used, such as property, plant and equipment and
definite-lived intangible assets for impairment based on the expected future cash flows or earnings projections
associated with such assets. 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. 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.
ASC 350 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
2010, Fiscal 2009 and Fiscal 2008, we tested our goodwill and indefinite-lived intangible assets. As a result of
this testing, we recorded no impairment charges in Fiscal 2010 and non-cash pretax impairment charges of $34
million and $861 million in Fiscal 2009 and Fiscal 2008, respectively. The $34 million impairment charge
incurred in Fiscal 2009 reflects an impairment of trade name intangible assets consisting of the following: (i) $18
million related to the Global Pet Supplies Business; (ii) $15 million related to the Global Batteries and Personal
Care segment; and (iii) $1 million related to the Home and Garden Business. The $861 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 the Home and
Garden Business; and (iii) $16 million related to our Global Batteries & Personal Care reportable segment. 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 the Home and Garden Business. 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 our total market capitalization, 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 ASC 740, 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 ASC
740, 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
2009 we recorded a reduction in the valuation allowance of approximately $363 million. Of the $363 million
80