Rayovac 2011 Annual Report Download - page 85

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 support
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
2011, Fiscal 2010 and Fiscal 2009, we tested our goodwill and indefinite-lived intangible assets as required. As a
result of this testing, we recorded non-cash pretax impairment charges of approximately $32 million in Fiscal
2011, no impairment charges in Fiscal 2010 and non-cash pretax impairment charges of approximately $34
million in Fiscal 2009. The $32 million impairment charge incurred in Fiscal 2011 reflects an impairment of
trade name intangible assets consisting of the following: (i) $23 million related to Global Batteries and
Appliances; (ii) $8 million related to Global Pet Supplies; and (iii) $1 million related to the Home and Garden
Business. 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 Appliances segment; and (iii) $1 million related to the Home and
Garden Business. 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 the aggregate estimated fair value of our reporting unites 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.
As of September 30, 2011 the fair value of our Global Batteries & Appliances, Global Pet Supplies and
Home and Garden Business reporting units, which are also our segments, exceeded their carry values by 39%,
50% and 27%, respectively, as of the date of our latest annual impairment testing.
See Note 2(h), Significant Accounting Policies and Practices—Property, Plant and Equipment, Note 2(i),
Significant Accounting Policies and Practices—Intangible Assets; Note 4, Property, Plant and Equipment;
Note 5, Goodwill and Intangible Assets; and Note 16, Discontinued Operations, of Notes to Consolidated
Financial Statements included in this Annual Report on Form 10-K for more information about these assets.
Revenue Recognition and Concentration of Credit Risk
We recognize revenue from product sales generally upon delivery to the customer or the shipping point in
situations where the customer picks up the product or where delivery terms so stipulate. This represents the point
at which title and all risks and rewards of ownership of the product are passed, provided that: there are no
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