Rayovac 2015 Annual Report Download - page 110

SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
Long-lived fixed assets held and used are reviewed for impairment when events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully recoverable. 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. If
such indicators are present, the Company performs undiscounted cash flow analyses to determine if impairment
exists. The asset value would be deemed impaired if the undiscounted cash flows generated did not exceed the
carrying value of the asset. If impairment is determined to exist, any related impairment loss is calculated based
on fair value. There were no triggering events identified during the year that necessitated an impairment test over
property, plant and equipment. Assets to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
See Note 7, “Property, plant and equipment” for further detail.
Goodwill
Goodwill reflects the excess of acquisition cost over the aggregate fair value assigned to identifiable net
assets acquired. Goodwill is not amortized, but instead is assessed for impairment at least annually and as
triggering events or indicators of potential impairment are identified. Goodwill has been assigned to reporting
units for purposes of impairment testing based upon the relative fair value of the asset to each reporting unit; our
reporting units are consistent with our segments (See Note 18, “Segment Information” for further discussion).
The Company performs its annual impairment test in the fourth quarter of its fiscal year.
Impairment of goodwill is evaluated using a two-step approach. In the first step, the fair value of each
reporting unit is compared to its carrying value, including goodwill. In estimating the fair value of our reporting
units, we use a discounted cash flow methodology, which requires us to estimate future revenues, expenses, and
capital expenditures and make assumptions about our weighted average cost of capital and perpetuity growth
rate, among other variables. We test the aggregate estimated fair value of our reporting units by comparison to
our total market capitalization, including both equity and debt capital. If the fair value of a reporting unit is less
than its carrying value, step two is performed. For step two, the implied fair value of goodwill is calculated by
deducting the fair value of all tangible and intangible net assets, including unrecognized intangible assets, of the
reporting unit from the fair value of the reporting unit. If the implied fair value of goodwill is less than its
carrying value, an impairment loss would be recognized equal to that excess. The fair values of the Global
Batteries & Appliances, Hardware and Home Improvement, Global Pet Supplies and Home & Garden reporting
units exceeded their carrying values by 54%, 38%, 29% and 66%, respectively. As a result, a step two analysis
was not required and there were no reporting units that were deemed at risk of impairment.
As a result of the AAG acquisition in the third quarter of the year ended September 30, 2015, a new
reporting unit and segment was established, Global Auto Care. Due to the recent closing of the acquisition and
the measurement of the net assets acquired at fair value in acquisition accounting, a qualitative assessment of the
carrying value of goodwill was performed for this reporting unit. This included evaluation of factors such as
macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and
reporting unit factors, among others. Based on its qualitative assessment, management concluded that it is not
more likely than not that the fair value of this reporting unit is less than its carrying amount, and a quantitative
impairment test of the acquired goodwill for Global Auto Care was not deemed necessary.
See Note 8 “Goodwill and Intangible Assets” for further detail.
96