Rayovac 2005 Annual Report Download - page 90

impairment at least annually at the reporting unit
level. If impairment is indicated, a write-down to fair
value (normally measured by discounting estimated
future cash fl ows) is recorded. Trade name intangi-
bles are tested for impairment at least annually by
comparing the fair value with the carrying value. Any
excess of carrying value over fair value is recognized
as an impairment loss in income from operations.
Intangibles with Indefinite Lives
In accordance with Statement of Financial
Standards (“SFAS”) No. 142, “Goodwill and Other
Intangible Assets” (“SFAS 142”), the Company per-
forms impairment testing of goodwill at the reporting
unit level. If impairment is indicated, a write-down to
fair value is recorded. The Company’s impairment
tests for goodwill compare the carrying amounts of
these assets with estimated fair values. The fair
value of goodwill exceeds their carrying amount in all
reporting units; therefore, the assets are not consid-
ered impaired. Had the carrying amounts of goodwill
exceeded fair values, a second step in the impair-
ment test would have been required to measure the
amount of a goodwill impairment loss. This step
would compare the implied fair values of the report-
ing unit’s goodwill with the carrying amount of good-
will. If the carrying amount of the reporting unit
goodwill exceeds the implied fair value of goodwill,
an impairment loss would be recognized in an
amount equal to that excess. Trade name intangi-
bles are tested for impairment by comparing the fair
value with the carrying value. Trade name fair values
are based on the respective discounted after-tax
royalty cash fl ows. Any excess of carrying value over
fair value is recognized as an impairment loss in
income from operations. There were no impairment
losses related to trade names recognized in fi scal
2005, 2004 or 2003.
In 2005, the Company tested trade names and
goodwill associated with its North America, Europe/
Rest of World (“Europe/ROW”), and Latin America
segments. In accordance with the requirements of
SFAS 142, the Company also tested the goodwill
associated with the United consumer home fertilizer
and garden business to be retained after the sale of
the Nu-Gro fertilizer technology and Canadian profes-
sional products divisions which is more fully dis-
cussed at Note 17, Subsequent Events. The fair val-
ues of the goodwill and trade name intangibles
tested exceeded their carrying amounts, and accord-
ingly, no impairment was indicated as of August 31,
2005, the date of testing for the Company. Trade
names acquired in connection with the United and
Tetra acquisitions and goodwill associated with the
Tetra acquisition were not tested for impairment as
the assets were not owned for at least one year
and no events have occurred since the respective
acquisitions (when the related fair values were
determined by independent appraisals) that would
indicate these assets might be impaired.
The fair values of the reporting units are deter-
mined using discounted cash fl ow models similar to
those used internally by the Company for evaluating
acquisitions with comparisons to estimated market
values. Assumptions critical to the Company’s fair
value estimates are: i) the present value factors
used in determining the fair value of the reporting
units and trade names, ii) royalty rates used in the
Company’s trade name valuations, iii) projected aver-
age 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. These and other assumptions are impacted
by economic conditions and expectations of man-
agement and will change in the future based on
period specifi c facts and circumstances.
Management uses its judgment in assessing
whether assets may have become impaired between
annual impairment tests. Indicators such as unex-
pected adverse business conditions, economic fac-
tors, unanticipated technological change or competi-
tive activities, loss of key personnel, and acts by
governments and courts may signal that an asset
has become impaired.
Intangibles with Definite or Estimable Useful Lives
The Company assesses the recoverability of
intangible assets with defi nite or estimable useful
lives in accordance with SFAS 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets”
(“SFAS 144”) by determining whether the carrying
value can be recovered through projected undis-
counted future cash fl ows. If projected undiscounted
future cash fl ows indicate that the unamortized
carrying value of intangible assets with fi nite useful
lives will not be recovered, an adjustment would be
made to reduce the carrying value to an amount
equal to projected future cash fl ows discounted at
the Company’s incremental borrowing rate. The cash
fl ow projections used are based on trends of histori-
cal performance and management’s estimate of
future performance, giving consideration to existing
and anticipated competitive and economic conditions.
2005 Form 10-K Annual Report
Spectrum Brands, Inc.
SPECTRUM BRANDS, INC.70