Sunbeam 2004 Annual Report Download - page 49

Jarden Corporation
Notes to Consolidated Financial Statements (cont’d)
December 31, 2004
amortized over their useful lives and are evaluated for impairment whenever events or circumstances
indicate that carrying amounts may not be recoverable through future undiscounted cash flows,
excluding interest costs. If facts or circumstances suggest that the Company’s intangible assets are
impaired, the Company assesses the fair value of the intangible assets and reduces them to an amount
that results in book value approximating fair value.
Taxes on Income
Deferred taxes are provided for differences between the financial statement and tax basis of assets
and liabilities using enacted tax rates. The Company established a valuation allowance against a portion
of the net tax benefit associated with all carryforwards and temporary differences in a prior year, as it was
more likely than not that these would not be fully utilized in the available carryforward period. A portion
of this valuation allowance remained as of December 31, 2004 and 2003 (see Note 9).
Fair Value and Credit Risk of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, notes payable, accounts
payable and accrued liabilities approximate their fair market values due to the short-term maturities of
these instruments. The fair market value of the Company’s senior subordinated notes was determined
based on quoted market prices (see Note 8). The fair market value of the Company’s other long-term
debt was estimated using rates currently available to the Company for debt with similar terms and
maturities (see Note 8).
The Company enters into interest rate swaps to manage interest rate exposures. The Company
designates the interest rate swaps as hedges of underlying debt. Interest expense is adjusted to include
the payment made or received under the swap agreements. The fair market value of the swap
agreements was estimated based on the current market value of similar instruments (see Note 15).
Financial instruments that potentially subject the Company to credit risk consist primarily of trade
receivables and interest-bearing investments. Trade receivable credit risk is limited due to the diversity of
the Company’s customers and the Company’s ongoing credit review procedures. Collateral for trade
receivables is generally not required. The Company places its interest-bearing cash equivalents with
major financial institutions.
Stock Options
In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 148, Accounting for Stock-Based Compensation –
Transition and Disclosure. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary change to the fair value
based methods of accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both
annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. As allowed for by both SFAS
No. 148 and SFAS No. 123, the Company accounts for the issuance of stock options using the intrinsic
value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations (“APB 25”). Generally for the Company’s stock
option plans, no compensation cost is recognized in the Consolidated Statements of Income because the
exercise price of the Company’s stock options equals the market price of the underlying stock on the
date of grant (see Note 2).
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