Rayovac 2012 Annual Report Download - page 98

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SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(In thousands, except per share amounts)
business conditions, economic factors, unanticipated technological change or competitive activities, loss of key
personnel, and acts by governments and courts may signal that an asset has become impaired.
During Fiscal 2012, Fiscal 2011 and Fiscal 2010, the Company’s goodwill and trade name intangibles were
tested for impairment as of the Company’s August financial period end, the Company’s annual testing date, as
well as in certain interim periods where an event or circumstance occurred that indicated an impairment loss may
have been incurred.
Intangibles with Indefinite Lives
In accordance with ASC 350, the Company conducts impairment testing on the Company’s goodwill. To
determine fair value during Fiscal 2012, Fiscal 2011 and Fiscal 2010, the Company used the discounted
estimated future cash flows methodology and third party valuations. Assumptions critical to the Company’s fair
value estimates under the discounted estimated future cash flows methodology are: (i) the present value factors
used in determining the fair value of the reporting units and trade names; (ii) projected average revenue growth
rates used in estimating future cash flows for the reporting unit; and (iii) 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 management and will change in the future based on period specific facts and circumstances. The
Company also tested the aggregate estimated fair value of its reporting units for reasonableness by comparison to
the total market capitalization of the Company, which includes both its equity and debt securities.
In addition, in accordance with ASC 350, as part of the Company’s annual impairment testing, the Company
tested its indefinite-lived trade name intangible assets for impairment by comparing the carrying amount of such
trade names to their respective fair values. Fair value was determined using a relief from royalty methodology.
Assumptions critical to the Company’s fair value estimates under the relief from royalty methodology were:
(i) royalty rates, (ii) projected average revenue growth rates, and (iii) applicable discount rates.
In connection with the Company’s annual goodwill impairment testing performed during Fiscal 2012, Fiscal
2011 and Fiscal 2010 the first step of such testing indicated that the fair value of the Company’s reporting
segments were in excess of their carrying amounts and, accordingly, no further testing of goodwill was required.
During Fiscal 2012, the Company concluded that the fair value of its intangible assets exceeded their
carrying value. Additionally, during Fiscal 2012 the Company reclassified $3,450 of certain trade names from
indefinite lived to definite lived. These trade names are being amortized over the remaining useful lives, which
have been estimated to be 1-3 years.
A triggering event occurred in Fiscal 2011 which required the Company to test its indefinite-lived intangible
assets for impairment between annual impairment dates. As more fully discussed above in Note 1, Description of
Business, on October 1, 2010, the Company realigned its operating segments into three vertically integrated,
product-focused reporting segments. The realignment of the Company’s operating segments constituted a
triggering event for impairment testing. In connection with this interim test, the Company compared the fair
value of its reporting segments to their carrying amounts both before and after the change in segment
composition, and determined the fair values were in excess of their carrying amounts and, accordingly, no further
testing of goodwill was required. The Company also tested the recoverability of its identified indefinite-lived
intangibles in connection with the realignment of its operating segments and concluded that the fair values of
these assets exceeded their carrying values.
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