Rayovac 2006 Annual Report Download - page 81

SPECTRUM BRANDS | 2006 ANNUAL REPORT 69
The costs of both temporary and permanent displays are capi-
talized as a prepaid asset and are included in Prepaid expenses
and other in the Consolidated Balance Sheets. The costs of tem-
porary displays are expensed in the period in which they are
shipped to customers, and the costs of permanent fi xtures are
amortized over an estimated useful life of one to two years once
they are shipped to customers and are refl ected in Deferred
charges and other in the Consolidated Balance Sheets.
(g) Inventories
The Company’s inventories are valued at the lower of cost or
market. Cost of inventories is determined using the fi rst-in, fi rst-
out (FIFO) method.
(h) Property, Plant and Equipment
Property, plant and equipment are stated at cost or at fair
value if acquired in a purchase business combination. Depreciation
on plant and equipment is calculated on the straight-line method
over the estimated useful lives of the assets. Depreciable lives by
major classifi cation are as follows:
Building and improvements 20-30 years
Machinery, equipment and other 2-15 years
The Company reviews long-lived assets for impairment when-
ever 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 car-
rying amount of an asset to future net cash fl ows 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. Customer lists and proprietary
technology intangibles are amortized, using the straight-line
method, over their estimated useful lives of approximately fi ve to
19 years. Excess of cost over fair value of net assets acquired (good-
will) and trade name intangibles are not amortized. Goodwill is
tested for 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 intangibles 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. Statement of Financial Accounting
Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”
(“SFAS 142”) requires that goodwill and indefi nite-lived intangible
assets are tested for impairment annually, or more often if an event
or circumstance indicates that an impairment loss may have been
incurred. The fair values of the Company’s goodwill and trade
name intangibles were tested as of August 31, 2006, the date of
testing for the Company.
In accordance with SFAS 142, the Company, with the assis-
tance of independent third party valuation specialists, conducted
impairment testing on the Company’s goodwill. The Company
used the discounted estimated future cash fl ows methodology
to determine the fair value of its reporting units. Assumptions
critical to the Company’s fair value estimates were: (i) the pres-
ent 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 the Company’s 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. 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. The Company also tested fair value for
reasonableness by comparison to the market capitalization of
the Company. The Company fi rst compared the fair value of its
reporting units with their carrying amounts, including goodwill.
This fi rst step indicated that the fair value of the Global Pet and
Latin America reporting units were less than their carrying amounts
and, accordingly, further testing of goodwill was required to deter-
mine the impairment charge required by SFAS 142.
Management then compared the carrying amount of the
Global Pet and Latin America reporting units’ goodwill against
their respective implied fair values of goodwill. The carrying
amounts of the reporting units’ goodwill were determined to
exceed their implied fair values and, therefore, management
recorded an impairment charge equal to the excess of the carry-
ing amounts of the reporting units’ goodwill over the implied fair
values of such goodwill. As a result of this goodwill impairment
analysis, the Company recorded a non-cash pretax goodwill
impairment charge of approximately $352,878. There were no
impairment losses related to goodwill recognized in fi scal 2005
or 2004.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.