Rayovac 2006 Annual Report Download - page 80

68 SPECTRUM BRANDS | 2006 ANNUAL REPORT
Company is not obligated to allow for, and the Company’s general
policy is not to accept, product returns associated with battery
sales. The Company does accept returns in specifi c instances
related to its shaving, grooming, personal care, lawn and garden,
household and pet products. The provision for customer returns
is based on historical sales and returns and other relevant infor-
mation. The Company estimates and accrues the cost of returns,
which are treated as a reduction of Net sales.
The Company enters into various promotional arrangements,
primarily with retail customers, including arrangements enti-
tling such retailers to cash rebates from the Company based on
the level of their purchases, which require the Company to esti-
mate and accrue the estimated costs of the promotional pro-
grams. These costs are treated as a reduction of Net sales.
The Company also enters into promotional arrangements that
target the ultimate consumer. Such arrangements are treated as
either a reduction of Net sales or an increase of Cost of goods sold,
based on the type of promotional program. The income statement
presentation of the Company’s promotional arrangements com-
plies with the 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).”
For all types of promotional arrangements and programs, the
Company monitors its commitments and uses various measures,
including past experience, to determine amounts to be recorded
for the estimate of the earned, but unpaid, promotional costs.
The terms of the Company’s customer-related promotional
arrangements and programs are tailored to each customer and
are documented through written contracts, correspondence or
other communications with the individual customers.
The Company also enters into various arrangements, primar-
ily with retail customers, which require the Company to make
upfront cash, or “slotting” payments, to secure the right to dis-
tribute through such customers. The Company capitalizes slot-
ting payments, provided the payments are supported by a time or
volume based arrangement with the retailer, and amortizes 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 the accompanying
Consolidated Balance Sheets.
(c) Use of Estimates
The preparation of fi nancial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
fi nancial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
(d) Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows,
the Company considers all highly liquid debt instruments pur-
chased with original maturities of three months or less to be
cash equivalents.
(e) Concentrations of Credit Risk, Major Customers
and Employees
Trade receivables subject the Company to credit risk. Trade
accounts receivable are carried at net realizable value. The
Company extends credit to its customers based upon an evalua-
tion of the customer’s fi nancial condition and credit history, but
generally does not require collateral. The Company monitors its
customers’ credit and fi nancial condition based on changing eco-
nomic conditions and will make adjustments to credit policies as
required. Provision for losses on uncollectible trade receivables
are determined principally on the basis of past collection experi-
ence applied to ongoing evaluations of the Company’s receivables
and evaluations of the risks of nonpayment for a given customer.
The Company has a broad range of customers including many
large retail outlet chains, one of which accounts for a signifi cant
percentage of its sales volume. This major customer represented
approximately 19% across all segments of its net sales during
2006, 2005 and 2004. This major customer also represented
approximately 11% and 12%, respectively, of Trade account
receivables, net as of September 30, 2006 and 2005.
Approximately 42% of the Company’s sales occur outside of
the United States. These sales and related receivables are subject
to varying degrees of credit, currency, and political and eco-
nomic risk. The Company monitors these risks and makes appro-
priate provisions for collectibility based on an assessment of the
risks present.
Approximately 17% of the total labor force is covered by col-
lective bargaining agreements. Bargaining agreements that expire
by the end of fi scal 2007 represent approximately 6% of the total
labor force. The Company believes its relationship with its
employees is good.
(f) Displays and Fixtures
Temporary displays are generally disposable cardboard displays
shipped to customers to facilitate display of the Company’s prod-
ucts. Temporary displays are generally disposed of after a single use
by the customer.
Permanent fi xtures are permanent in nature, generally made
from wire or other permanent racking, which are shipped to cus-
tomers for display of the Company’s products. These permanent
fi xtures are restocked with the Company’s product multiple
times over the fi xture’s useful life.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.