Rayovac 2002 Annual Report Download - page 36

The Company enters into various promotional arrangements, primarily with retail customers, which require the Company to estimate total purchases
from the Company. In addition, the Company enters into promotional programs, primarily with retail customers, which require the Company to esti-
mate and accrue the estimated costs of the promotional program. The Company monitors its commitments for promotional arrangements and programs,
and uses statistical measures and past experience to record a liability for the estimate of the earned, but unpaid, promotional costs. The use of different
assumptions would increase or decrease the estimate of the earned, but unpaid, promotional costs and could, therefore, change the liability recorded.
The Company’s trade receivables subject the Company to credit risk which is evaluated based on changing economic, political, and specific customer
conditions. The Company assesses these risks and makes provisions for collectibility based on our best estimate of the risks present and information
available at the date of the financial statements. The use of different assumptions may change the estimate of collectibility.
See Notes (2b), (2c), and (2e) to the Consolidated Financial Statements for more information about our Revenue Recognition and Credit policies.
Pensions
Our accounting for pension benefits is primarily based on discount rate, expected and actual return on plan assets and other assumptions made by man-
agement, and is impacted by outside factors such as equity and fixed income market performance. Pension liability is principally the estimated present
value of future benefits, net of plan assets. Pension expense is principally the sum of interest and service cost of the plan, less the expected return on plan
assets and the amortization of the difference between our assumptions and actual experience. The expected return on plan assets is calculated by apply-
ing an assumed rate of return to the fair value of plan assets. If plan assets decline due to poor performance by the markets and/or interest rate declines,
as was experienced in fiscal 2002, our pension liability increases, ultimately increasing future pension expense. See Notes 2(c) and 11 to the
Consolidated Financial Statements for a more complete discussion of our employee benefit plans.
Restructuring
Restructuring liabilities are recorded for estimated cost of facility closures, significant organizational adjustments, and measures undertaken by manage-
ment to exit certain activities. Costs for such activities are estimated by management after evaluating detailed analyses of the cost incurred. Such liabili-
ties could include amounts for items such as severance costs and related benefits (including settlements of pension plans), impairment of property and
equipment and other current or long term assets, lease termination payments, plus any other items directly related to the exit costs. While the actions
are carried out as expeditiously as possible, changes in estimates, resulting in an increase to or a reversal of a previously recorded liability, may be required
as management executes the restructuring plan. See Notes 15 and 18 to the Consolidated Financial Statements for discussion of recent restructuring ini-
tiatives and related costs.
Loss Contingencies
Loss contingencies are recorded as liabilities when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.
The outcome of existing litigation and the impact of environmental matters are examples of situations evaluated as loss contingencies. Estimating the
probability and magnitude of losses is often dependent upon management judgments of potential actions by third parties and regulators. It is possible
that changes in estimates or an increased probability of an unfavorable outcome could materially affect future results of operations. See further discus-
sion in Item 3 (“Legal Proceedings”) in our Annual Report on Form 10-K, and Notes 2(c), 2(f), and 13 to the Consolidated Financial Statements.
Other Significant Accounting Policies
Other significant accounting policies, primarily those with lower levels of uncertainty than those discussed above, are also critical to understanding the
Consolidated Financial Statements. Our notes to the Consolidated Financial Statements contain additional information related to our accounting poli-
cies and should be read in conjunction with this discussion.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Rayovac Corporation and Subsidiaries