Rayovac 2002 Annual Report Download - page 46

32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)
(v) Adoption of New Accounting Pronouncements Effective October 1, 2000, the Company adopted Financial Accounting Standards Board (FASB)
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other contracts and for hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the change in the
fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portions of changes in the fair value of the derivative are recorded in Other Comprehensive Income (OCI) and are recognized in the
income statement when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings.
The adoption of Statement No. 133 resulted in a pretax reduction to OCI of $317 ($150 after tax) in 2001. The reduction of OCI was primarily
attributable to losses of approximately $500 for foreign exchange forward cash flow hedges partially offset by gains of approximately $200 on interest
rate swap cash flow hedges. (See also footnote 2(r)).
In May 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, “Accounting for Certain Sales Incentives”. This Issue
addresses the recognition, measurement, and income statement classification for various types of sales incentives including discounts, coupons, rebates
and free products. In April 2001, the EITF reached a consensus on Issue No. 00-25, “Vendor Income Statement Characterization of Consideration Paid
to a Reseller of the Vendor’s Products or Services”. This Issue addresses when consideration from a vendor to a retailer or distributor in connection with
the purchase of the vendor’s products to promote sales of the vendor’s products should be classified in the vendor’s income statement as a reduction of
revenue or expense. The Company adopted EITF 00-14 and EITF 00-25 in the second fiscal quarter of 2002.
The adoption resulted in the following reclassifications in the Company’s results of operations in 2000, 2001 and 2002. Net sales were reduced by
$62,452, $59,319 and $52,577, respectively; cost of sales were increased by $11,200, $12,880 and $15,480, respectively; and selling expenses were
reduced by $73,652, $72,199 and $68,057, respectively.
Concurrent with the adoption of EITF 00-25, the Company reclassified certain accrued trade incentives as a contra receivable versus the Company’s pre-
vious presentation as a component of accounts payable. Historically, customers offset earned trade incentives when making payments on account.
Therefore, the Company believes the reclassification of these accrued trade incentives as a contra receivable better reflects the underlying economics of
the Company’s net receivable due from trade customers. The reclassification resulted in a reduction in accounts receivable and accounts payable in our
Consolidated Balance Sheets of $21,383 and $21,277 at September 30, 2001 and September 30, 2002, respectively.
Effective July 1, 2001, the Company adopted Statement No. 141, Business Combinations, and effective October 1, 2001, Statement No. 142, Goodwill
and Other Intangible Assets.
Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated or completed on or after July 1,
2001. Statement No. 141 also specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized
and reported apart from goodwill. Statement No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the provisions of Statement No. 142. Statement No. 142 also requires that intangible
assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment
in accordance with Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. Upon the transi-
tion to Statement No. 142, no goodwill was deemed to be impaired. (See also footnote 2(i)).