Goodwill and Intangibles

12 Months Ended

Sep. 30, 2012

(10) Goodwill and Intangibles

Consumer Products and Other

A summary of the changes in the carrying amounts of goodwill and intangible assets of the consumer products segment is as follows:


				Intangible Assets
	Goodwill			Indefinite Lived			Amortizable			Total
Balance at September 30, 2010	$	600,055		$	857,478		$	911,882		$	1,769,360
Acquisitions (Note 22)		10,284			2,780			4,193			6,973
Intangible asset impairment		—			(32,450	)		—			(32,450	)
Amortization during period		—			—			(57,695	)		(57,695	)
Effect of translation		(1	)		(1,013	)		(1,266	)		(2,279	)

Balance at September 30, 2011	$	610,338		$	826,795		$	857,114		$	1,683,909
Acquisitions (Note 22)		85,875			22,000			82,118			104,118
Amortization during period		—			—			(63,666	)		(63,666	)
Reclassifications		—			(3,450	)		3,450			—
Effect of translation		(1,968	)		(4,277	)		(5,155	)		(9,432	)

Balance at September 30, 2012	$	694,245		$	841,068		$	873,861		$	1,714,929

Intangible assets subject to amortization include customer relationships, certain trade names and proprietary technology which are summarized as follows:


	September 30, 2012						September 30, 2011
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net		Amortizable Life
Customer relationships	$	796,235	$	113,012	$	683,223	$	738,937	$	73,373	$	665,564	15-20 years
Trade names		150,829		28,347		122,482		149,700		16,320		133,380	1-12 years
Technology assets		90,924		22,768		68,156		71,805		13,635		58,170	4-17 years

	$	1,037,988	$	164,127	$	873,861	$	960,442	$	103,328	$	857,114

Amortization expense related to intangible assets subject to amortization is as follows:


	Year Ended September 30,
	2012		2011		2010
Customer relationships	$	40,186	$	38,320	$	35,865
Trade names		14,347		12,558		3,750
Technology assets		9,133		6,817		6,305

	$	63,666	$	57,695	$	45,920

Spectrum Brands estimates annual amortization expense for the next five fiscal years will approximate $63,600 per year.

Impairment Charges

In accordance with ASC 350, Spectrum Brands conducts impairment testing on its goodwill. To determine fair value during Fiscal 2012, 2011 and 2010, Spectrum Brands used the discounted estimated future cash flows methodology and third party valuations. Assumptions critical to Spectrum Brands’ 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. Spectrum Brands also tested the aggregate estimated fair value of its reporting units for reasonableness by comparison to the total market capitalization of Spectrum Brands, which includes both its equity and debt securities. In addition, in accordance with ASC 350, as part of Spectrum Brands’ annual impairment testing, Spectrum Brands 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 Spectrum Brands’ fair value estimates under the relief from royalty methodology were: (i) royalty rates; (ii) projected average revenue growth rates; and (iii) applicable discount rates.

A triggering event occurred in Fiscal 2011 which required Spectrum Brands to test its indefinite-lived intangible assets for impairment between annual impairment dates. The realignment of Spectrum Brands’ operating structure constituted a triggering event for impairment testing. Spectrum Brands compared the fair values of its reporting units to their carrying amounts both before and after the realignment and determined the fair values were in excess of the carrying amounts and, accordingly, no further testing of goodwill was required. In connection with the triggering event impairment testing, Spectrum Brands also tested the recoverability of its identified indefinite-lived intangibles and concluded that the fair values of those assets exceeded their carrying values.

In connection with Spectrum Brands’ annual goodwill impairment testing performed during Fiscal 2012, 2011 and 2010, the first step of such testing indicated that the fair value of Spectrum Brands’ reporting segments were in excess of their carrying amounts and, accordingly, no further testing of goodwill was required.

In connection with its annual impairment testing of indefinite-lived intangible assets during Fiscal 2012 and 2010, Spectrum Brands concluded that the fair values of its intangible assets exceeded their carrying values. Additionally, during Fiscal 2012 Spectrum Brands reclassified $3,450 of certain indefinite lived trade names to definite lived trade names. Those trade names are being amortized over the remaining useful lives, which have been estimated to be 1-3 years. During Fiscal 2011, Spectrum Brands concluded that the fair values of certain trade name intangible assets were less than the carrying amounts of those assets. As a result, during Fiscal 2011 the Company recorded non-cash pretax intangible asset impairment charges of $32,450 within “Selling, general and administrative expenses” which was equal to the excess of the carrying amounts of the intangible assets over the fair values of such assets.

The Fiscal 2011 impairments of trade name intangible assets were primarily attributed to lower current and forecasted profits, reflecting more conservative growth rates versus those originally assumed by Spectrum Brands at the time of acquisition or upon adoption of fresh start reporting.

Insurance and Financial Services

Information regarding VOBA and DAC (including DSI) is as follows:


	VOBA			DAC			Total
Balance at September 30, 2010	$	—		$	—		$	—
Acquisition of FGL on April 6, 2011		577,163			—			577,163
Deferrals		—			41,152			41,152
Less: Components of amortization —
Periodic amortization		294			(996	)		(702	)
Interest		14,040			—			14,040
Unlocking		(2,320	)		97			(2,223	)
Add: Adjustment for unrealized investment (gains), net		(170,117	)		(2,146	)		(172,263	)

Balance at September 30, 2011	$	419,060		$	38,107		$	457,167
Deferrals		—			194,900			194,900
Less: Components of amortization —
Periodic amortization		(171,833	)		(20,239	)		(192,072	)
Interest		28,883			1,942			30,825
Unlocking		(2,487	)		3,078			591
Add: Adjustment for unrealized investment (gains), net		(169,303	)		(48,565	)		(217,868	)

Balance at September 30, 2012	$	104,320		$	169,223		$	273,543

Amortization of VOBA and DAC is based on the amount of gross margins or profits recognized, including investment gains and losses. The adjustment for unrealized net investment gains represents the amount of VOBA and DAC that would have been amortized if such unrealized gains and losses had been recognized. This is referred to as the “shadow adjustments” as the additional amortization is reflected in other comprehensive income rather than the statements of operations. As of September 30, 2012 and 2011, the VOBA balance included cumulative adjustments for net unrealized investment gains of $(339,420) and $(170,117), respectively, and the DAC balances included cumulative adjustments for net unrealized investment gains of $(50,711) and $(2,146), respectively.

The above DAC balances include $9,068 and $5,048 of DSI, net of shadow adjustments, as of September 30, 2012 and 2011, respectively.

The weighted average amortization period for VOBA and DAC are approximately 5.5 and 6.3 years, respectively. Estimated amortization expense for VOBA and DAC in future fiscal years is as follows:


	Estimated Amortization Expense
Fiscal Year	VOBA		DAC
2013	$	49,851	$	18,293
2014		57,552		23,090
2015		51,503		23,376
2016		47,148		22,315
2017		39,965		21,042
Thereafter		197,721		111,818

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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