Rayovac 2006 Annual Report Download - page 53

SPECTRUM BRANDS | 2006 ANNUAL REPORT 41
See Note 2(h), Signifi cant Accounting Policies—Property,
Plant and Equipment, Note 2(i), Signifi cant Accounting Policies—
Intangible Assets, Note 4, Property, Plant and Equipment, Note 6,
Intangible Assets and Note 10, Income Taxes, 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. This represents the point at
which title and all risks and rewards of ownership of the product
are passed, provided that: there are no uncertainties regarding
customer acceptance; there is persuasive evidence that an
arrangement exists; the price to the buyer is fi xed or determin-
able; and collectibility is deemed reasonably assured. We are gen-
erally not obligated to allow for, and our general policy is not to
accept, product returns for battery sales. We do accept returns in
specifi c instances related to our shaving and grooming, personal
care, lawn and garden, household and pet products. The provi-
sion for customer returns is based on historical sales and returns
and other relevant information. We estimate and accrue the cost
of returns, which are treated as a reduction of net sales.
We enter into various promotional arrangements, primarily
with retail customers, including arrangements entitling such
retailers to cash rebates from us based on the level of their pur-
chases, which require us to estimate and accrue the estimated
costs of the promotional programs. These costs are generally
treated as a reduction of net sales.
We also enter into promotional arrangements that target the
ultimate consumer. Such arrangements are treated as either a
reduction of net sales or an increase in cost of sales, based on the
type of promotional program. The income statement presentation
of our promotional arrangements complies with Emerging Issues
Task Force (“EITF”) No. 01-09, “Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).”
Cash consideration, or an equivalent thereto, given to a cus-
tomer is generally classifi ed as a reduction of net sales. If we provide
a customer with anything other than cash, the cost of the consider-
ation is classifi ed as an expense and is included in cost of sales.
For all types of promotional arrangements and programs, we
monitor our commitments and use statistical measures and past
experience to determine the amounts to be recorded for the esti-
mate of the earned, but unpaid, promotional costs. The terms of
our customer-related promotional arrangements and programs
are tailored to each customer and are generally documented
through written contracts, correspondence or other communi-
cations with the individual customers.
We also enter into various arrangements, primarily with
retail customers, which require us to make an upfront cash, or
“slotting” payment, to secure the right to distribute through such
customer. We capitalize slotting payments, provided the pay-
ments are supported by a time or volume based arrangement
with the retailer, and will amortize the associated payment over
the appropriate time or volume based term of the arrangement.
The amortization of slotting payments is treated as a reduction in
net sales and a corresponding asset is reported in Deferred
charges and other in our Consolidated Balance Sheets.
Our trade receivables subject us to credit risk which is evalu-
ated based on changing economic, political and specifi c customer
conditions. We assess these risks and make provisions for collect-
ibility based on our best estimate of the risks presented and infor-
mation available at the date of the fi nancial statements. The use of
different assumptions may change our estimate of collectibility.
We extend credit to our customers based upon an evaluation of
the customer’s fi nancial condition and credit history and gener-
ally do not require collateral. Our credit terms generally range
between 30 and 90 days from invoice date, depending upon the
evaluation of the customer’s fi nancial condition and history. We
monitor our customers’ credit and fi nancial conditions in order
to assess whether the economic conditions have changed and
adjust our credit policies with respect to any individual customer
as we determine appropriate. These adjustments may include, but
are not limited to, restricting shipments to customers, reducing
credit limits, shortening credit terms, requiring cash payments in
advance of shipment or securing credit insurance.
See Note 2(b), Signifi cant Accounting Policies—Revenue
Recognition, Note 2(c), Signifi cant Accounting Policies—Use of
Estimates and Note 2(e), Signifi cant Accounting Policies—
Concentrations of Credit Risk and Major Customers, of Notes to
Consolidated Financial Statements included in this Annual Report
on Form 10-K for more information about our revenue recogni-
tion and credit policies.
Pensions
Our accounting for pension benefi ts is primarily based on dis-
count rate, expected and actual return on plan assets and other
assumptions made by management, and is impacted by outside fac-
tors such as equity and fi xed income market performance. Pension
liability is principally the estimated present value of future benefi ts,
net of plan assets. In calculating the estimated present value of
future benefi ts, net of plan assets, for both 2006 and 2005, we used
discount rates of 4.0% to 6.25%. In adjusting the discount rate
from 2005 to 2006, we considered the change in the general mar-
ket interest rates of debt and solicited the advice of our actuary. We
believe the discount rate used is refl ective of the rate at which the
pension benefi ts could be effectively settled.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.