Rayovac 2014 Annual Report Download - page 76

Accounting for Acquisitions
Accounting for acquisitions requires us to recognize and measure identifiable assets acquired, liabilities
assumed and any non-controlling interest in the acquired entity. Our accounting for acquisitions involves significant
judgments and estimates, including the fair value of certain forms of consideration; the fair value of acquired
intangible assets, which involve projections of future revenues, cash flows and terminal value, that are then either
discounted at an estimated discount rate or measured at an estimated royalty rate; the fair value of other acquired
assets and assumed liabilities, including potential contingencies; and the useful lives of the assets. The projections
are developed using internal forecasts, available industry and market data and estimates of long-term rates of growth
for our business. The impact of prior or future acquisitions on our financial position or results of operations may be
materially impacted by the change in or initial selection of assumptions and estimates.
See Note 15, “Acquisitions” of Notes to Consolidated Financial Statements included in this Annual Report
on Form 10-K for further discussion of ASC 805 purchase accounting valuation assumptions.
Deferred Income Tax Asset and Other Tax Reserves
We assess our deferred tax asset and record a valuation allowance, when necessary, to reduce our deferred
tax asset to the amount that is more likely than not to be realized. We have considered future taxable income,
taxable temporary differences and ongoing prudent and feasible tax planning strategies in assessing the need for
the valuation allowance. Should we determine that we would not be able to realize all or part of our net deferred
tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period we made
that determination.
We establish reserves when, despite our belief that our tax returns are fully supportable, we believe that
certain positions may be challenged and ultimately modified. We adjust the reserves in light of changing facts
and circumstances. Our effective tax rate includes the impact of income tax related reserve positions and changes
to income tax reserves that we consider appropriate. A number of years may elapse before a particular matter for
which we have established a reserve is finally resolved. Unfavorable settlement of any particular issue may
require the use of cash or a reduction in our net operating loss carryforwards. Favorable resolution would be
recognized as a reduction to the effective rate in the year of resolution. Tax reserves are presented on the balance
sheet in other liabilities.
See Note 9, “Income Taxes” of Notes to Consolidated Financial Statements included in this Annual Report
on Form 10-K.
Loss Contingencies
Loss contingencies are recorded as liabilities when it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated. The outcome of existing litigation, the impact of environmental
matters and pending or potential examinations by various taxing authorities are examples of situations evaluated
as loss contingencies. Estimating the probability and magnitude of losses is often dependent upon management’s
judgment of potential actions by third parties and regulators. It is possible that changes in estimates or an
increased probability of an unfavorable outcome could materially affect our business, financial condition or
results of operations.
See further discussion in Item 3, Legal Proceedings, and Note 12, “Commitments and Contingencies,” of
Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Other Significant Accounting Policies
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed above,
are also critical to understanding the Consolidated Financial Statements included in this Annual Report on Form 10-K.
The Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K contain additional
information related to our accounting policies and should be read in conjunction with this discussion.
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