Rayovac 2015 Annual Report Download - page 79

value of the reporting unit, we used a discounted cash flows 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. The fair value of
Global Batteries & Appliances, Hardware and Home Improvement, Global Pet Supplies, and Home & Garden
reporting units exceeded their carrying value by 54%, 38%, 29% and 66%, respectively.
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 net assets acquired to fair value, a qualitative assessment of the carrying value of goodwill
was performed for this reporting unit. This included the 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.
In addition to goodwill, the Company has indefinite-lived intangible assets that consist of acquired
tradenames. On an annual basis, or more frequently if triggering events occur, the Company compares the
estimated fair value of the identified trade names to the carrying value to determine if potential impairment
exists. If the fair value is less than its carrying value, an impairment loss is recorded for the excess. The fair value
of indefinite-lived intangible assets is determined using an income approach, the relief from royalty
methodology, which requires us to make estimates and assumptions about future revenues, royalty rates, and the
discount rate, among others. The fair value of our tradenames exceeded the carrying values as of the date of our
latest annual impairment testing resulting in no impairment of our indefinite lived intangible assets for the year
ended September 30, 2015.
The Company also reviews other definite-lived intangible assets and tangible fixed assets 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 expected to be generated by the asset 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 definite-lived assets.
A considerable amount of judgment and assumptions is required in performing the impairment tests,
principally in determining the fair value of each reporting unit and assets subject to impairment testing. While the
Company believes its judgments and assumptions are reasonable, different assumptions could change the
estimated fair value and therefore, additional impairment changes could be required. The Company is subject to
financial statement risk in the event that business or economic conditions unexpectedly decline and impairment is
realized.
Pensions
The Company recognizes amounts on the consolidated financial statements related to defined benefit
pension plans using a September 30 measurement date. The accounting for these plans requires us to recognize
the overfunded and/or underfunded status of each pension plan (i.e. the estimated present value of future benefits,
net of plan assets) on the consolidated statement of financial position. A substantial portion of our pension
obligations are related to defined benefit pension plans in the U.S., a majority of which are frozen. The
determination of the estimated present value of future benefits includes several important assumptions,
particularly around discount rates, expected returns on plan assets, and retirement and mortality rates.
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