Rayovac 2009 Annual Report Download - page 78

Table of Contents
Index to Financial Statements
Critical Accounting Policies
Our Consolidated Financial Statements included in this Annual Report on Form 10−K have been prepared in accordance with GAAP and fairly
present our financial position and results of operations. We believe the following accounting policies are critical to an understanding of our financial
statements. The application of these policies requires management’s judgment and estimates in areas that are inherently uncertain.
Valuation of Assets and Asset Impairment
We evaluate certain long−lived assets to be held and used, such as property, plant and equipment and definite−lived intangible assets for impairment
based on the expected future cash flows or earnings projections associated with such assets. Impairment reviews are conducted at the judgment of
management 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 flow losses or an adverse change in legal factors or in the business climate, among others, may trigger an
impairment review. An asset’s value is deemed impaired if the discounted cash flows or earnings projections generated do not substantiate the carrying
value of the asset. The estimation of such amounts requires management’s judgment with respect to revenue and expense growth rates, changes in working
capital and selection of an appropriate discount rate, as applicable. The use of different assumptions would increase or decrease discounted future operating
cash flows or earnings projections and could, therefore, change impairment determinations.
ASC 350 requires companies to test goodwill and indefinite−lived intangible assets for impairment annually, or more often if an event or
circumstance indicates that an impairment loss may have been incurred. In Fiscal 2009, Fiscal 2008 and Fiscal 2007, we tested our goodwill and
indefinite−lived intangible assets. As a result of this testing, we recorded non−cash pretax impairment charges of $34 million, $861 million and $362
million in Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively. The $34 million impairment charge incurred in Fiscal 2009 reflects an impairment of trade
name intangible assets consisting of the following: (i) $18 million related to the Global Pet Supplies Business; (ii) $15 million related to the Global Batteries
and Personal Care segment; and (iii) $1 million related to the Home and Garden Business. The $861 million impairment charge incurred in Fiscal 2008
reflects impaired goodwill of $602 million and impaired trade name intangible assets of $259 million. The $602 million of impaired goodwill consisted of
the following: (i) $426 million associated with our Global Pet Supplies reportable segment; (ii) $160 million associated with the Home and Garden
Business; and (iii) $16 million related to our Global Batteries & Personal Care reportable segment. The $259 million of impaired trade name intangible
assets consisted of the following: (i) $86 million related to our Global Batteries & Personal Care reportable segment; (ii) $98 million related to Global Pet
Supplies; and (iii) $75 million related to the Home and Garden Business. The $362 million impairment charge incurred in Fiscal 2007 reflects $214 million
of goodwill associated with our North America reporting unit, which is now part of our Global Batteries & Personal Care reportable segment, a goodwill
impairment of $124 million within the U.S. Home and Garden Business and an impairment of trade name intangible assets of $24 million, primarily
associated with our Global Batteries & Personal Care reportable segment. Future cash expenditures will not result from these impairment charges.
We used a discounted estimated future cash flows methodology, third party valuations and negotiated sales prices to determine the fair value of our
reporting units (goodwill). Fair value of indefinite−lived intangible assets, which represent trade names, was determined using a relief from royalty
methodology. Assumptions critical to our fair value estimates were: (i) the present 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 our 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. We also tested fair value for reasonableness by comparison to our total market capitalization, which includes both our equity and debt securities.
These and other assumptions are impacted by economic conditions and expectations of management and will change in the future based on period specific
facts and circumstances. In
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