Rayovac 2002 Annual Report Download - page 43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)
Bargaining agreements that expire in 2003 represent approximately 14% of the total labor force.
The Mexico City, Mexico manufacturing facility was closed during the first quarter of fiscal 2003. Additionally, it was announced on October 10, 2002, that
the Madison, Wisconsin facility would be closed during fiscal 2003, prior to its bargaining agreement’s expiration. (See Subsequent Events footnote 18).
(f) Displays and Fixtures The costs of temporary displays are capitalized as a prepaid asset and charged to expense when shipped to a customer location.
Permanent fixtures are capitalized as deferred charges and amortized over an estimated useful life of one to two years.
(g) Inventories Inventories are stated at lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for approximately 83%
and 78% of the inventories at September 30, 2001 and 2002, respectively. Costs for other inventories have been determined primarily using the average
cost method.
(h) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calculated on the straight-
line method over the estimated useful lives of the assets. Depreciable lives by major classification are as follows:
Building and improvements 20–30 years
Machinery, equipment and other 2–15 years
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company evaluates recoverability of assets to be held and used by comparing the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
(i) Intangible Assets Intangible assets are recorded at cost. Non-compete agreements and proprietary technology intangibles are amortized, using the
straight-line method, over their estimated useful lives of 5 to 17 years. Excess cost over fair value of net assets acquired (goodwill) and trade name intan-
gibles are not amortized. Goodwill is tested for impairment at least annually at the reporting unit level. If impairment is indicated, a write-down to fair value
(normally measured by discounting estimated future cash flows) is recorded. Trade name intangibles are tested for impairment at least annually by com-
paring the fair value with the carrying value. Any excess of carrying value over fair value is recognized as an impairment loss in income from operations.
The Company assesses the recoverability of its intangible assets with finite useful lives by determining whether the amortization of the remaining balance
over its remaining life can be recovered through projected undiscounted future cash flows. If projected future cash flows indicate that the unamortized
carrying value of intangible assets with finite useful lives will not be recovered, an adjustment would be made to reduce the carrying value to an amount
equal to projected future cash flows discounted at the Company’s incremental borrowing rate. Cash flow projections used by the Company are based on
trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and
economic conditions. (See also Adoption of New Accounting Pronouncements footnote 2(v), and Intangible Assets footnote 5).
(j) Debt Issuance Costs Debt issuance costs are capitalized and amortized to interest expense over the lives of the related debt agreements.
(k) Accounts Payable Included in accounts payable at September 30, 2001 and 2002, is approximately $16,464 and $6,247, respectively, of book over-
drafts on disbursement accounts which were replenished when checks were presented for payment.
(l) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the enactment date.