Sunbeam 2004 Annual Report Download - page 33

Management’s Discussion and Analysis of Financial Condition and Results of Operations
(cont’d)
prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would not be able to realize all or part of our net deferred tax assets
in the future, an adjustment to the deferred tax assets would be charged to income in the period such
determination was made. Likewise, should we determine that we would be able to realize our deferred
tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax assets
would increase income in the period such determination was made.
Intangible assets
We have significant intangible assets on our balance sheet that include goodwill, trademarks and
other intangibles fair valued in conjunction with acquisitions. The valuation and classification of these
assets and the assignment of amortizable lives involves significant judgments and the use of estimates.
The testing of these intangibles under established guidelines for impairment also requires significant use
of judgment and assumptions (such as cash flows, terminal values and discount rates). Our assets are
tested and reviewed for impairment on an ongoing basis under the established accounting guidelines.
Changes in business conditions could potentially require adjustments to these asset valuations.
Contingencies
We are involved in various legal disputes and other legal proceedings that arise from time to time in
the ordinary course of business. In addition, the Environmental Protection Agency has designated our
Company as a potentially responsible party, along with numerous other companies, for the cleanup of
several hazardous waste sites. Based on currently available information, we do not believe that the
disposition of any of the legal or environmental disputes our Company is currently involved in will
require material capital or operating expenditures or will otherwise have a material adverse effect upon
the financial condition, results of operations, cash flows or competitive position of our Company. It is
possible, that as additional information becomes available, the impact on our Company of an adverse
determination could have a different effect.
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No.
123 (revised 2004) (“Statement 123 (R)”), Share-Based Payment, which is a revision of FASB Statement
No. 123 (“Statement 123”), Accounting for Stock-Based Compensation. Statement 123 (R) supersedes
APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95,
Statement of Cash Flows. Generally, the approach in Statement 123 (R) is similar to the approach
described in Statement 123. However, Statement 123 (R) requires all shared-based payments to
employees, including grants of employee stock options, to be recognized in the income statement based
on their fair values. Pro forma disclosure is no longer an alternative.
Statement 123 (R) must be adopted no later than July 1, 2005. Early adoption will be permitted in
periods in which financial statements have not yet been issued. We expect to adopt Statement 123 (R)
on July 1, 2005.
Statement 123 (R) permits public companies to adopt its requirements using one of two methods:
1. A “modified prospective” method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of Statements 123 (R) for all share–based
payments granted after the effective date and (b) based on the requirements of Statement 123
for all awards granted to employees prior to the effective date of Statement 123 (R) that remain
unvested on the effective date; or
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