Rayovac 2006 Annual Report Download - page 82

70 SPECTRUM BRANDS | 2006 ANNUAL REPORT
In addition, in accordance with SFAS 142, the Company, with
the assistance of independent third party valuation specialists,
also compared the carrying amount of trade name intangible
assets with fair value. Fair value was determined using a relief
from royalty methodology. Management concluded that the fair
values of certain trade name intangible assets were less than the
carrying amounts of those assets. As a result, the Company
recorded a non-cash pretax impairment charge of approximately
$80,100, equal to the excess of the carrying amounts of these
intangible assets over the fair value of such assets. There were no
impairment losses related to trade names recognized in fi scal
2005 or 2004.
The recognition of the total $432,978 non-cash impairment of
certain goodwill and indefi nite-lived intangible assets, recorded as
a separate component of Operating expenses, has had a material
negative effect on the Company’s fi nancial condition and results of
operations for the fi scal year ended September 30, 2006. The
impairments will not result in future cash expenditures.
Management uses its judgment in assessing whether assets
may have become impaired between annual impairment tests.
Indicators such as unexpected adverse business conditions, eco-
nomic factors, 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. The above
impairment of goodwill and indefi nite-lived intangibles is pri-
marily attributed to lower current and forecasted profi ts versus
those assumed by the Company at the time of acquisition.
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 undiscounted 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 historical
performance and management’s estimate of future perfor-
mance, giving consideration to existing and anticipated com-
petitive and economic conditions.
Impairment reviews are conducted at the judgment of man-
agement 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 fl ow losses, or an adverse change in legal fac-
tors or in the business climate, among others, may trigger an
impairment review. The Company’s initial impairment review to
determine if an impairment test is required is based on an undis-
counted cash fl ow analysis for asset groups at the lowest level for
which identifi able cash fl ows exist. The analysis requires manage-
ment judgment with respect to changes in technology, the con-
tinued success of product lines and future volume, revenue and
expense growth rates, and discount rates. There were no impair-
ment charges for defi nite-lived intangible assets recorded during
2006, 2005 or 2004. (See also Note 6, Intangible Assets).
(j) Debt Issuance Costs
Debt issuance costs are capitalized and amortized to interest
expense using the effective interest method over the lives of the
related debt agreements.
(k) Accounts Payable
Included in accounts payable are bank overdrafts, net of
deposits on hand, on disbursement accounts that were replen-
ished when checks were presented for payment.
(l) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
fi nancial statement carrying amounts of existing assets and liabili-
ties and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are mea-
sured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and lia-
bilities of a change in tax rates is recognized in income in the
period of the enactment date.
(m) Foreign Currency Translation
Assets and liabilities of the Company’s foreign subsidiaries are
translated at the rate of exchange existing at year-end, with reve-
nues, expenses, and cash fl ows translated at the average of the
monthly exchange rates. Adjustments resulting from translation
of the fi nancial statements are recorded as a component of
Accumulated other comprehensive income (“AOCI”). Also
included in AOCI are the effects of exchange rate changes on
intercompany balances of a long-term nature.
As of September 30, 2006 and 2005, foreign currency trans-
lation adjustment balances of $39,031 and $24,769, respectively,
were refl ected in the Consolidated Balance Sheets in Accumulated
other comprehensive income.
Exchange losses on foreign currency transactions aggregating
$3,898, $95, and $949 for 2006, 2005 and 2004, respectively,
are included in Other (income) expense, net, in the Consolidated
Statements of Operations.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.