Rayovac 2003 Annual Report Download - page 29

Valuation of Assets and Asset Impairment
We evaluate certain long-lived assets, such as property, plant and equipment, and certain intangibles for impairment based on the
expected future cash flows or earnings projections. An asset’s value is deemed impaired if the discounted cash flows or earnings
projections generated do not substantiate the carrying value of the asset. The estimation of such amounts requires management
judgment with respect to revenue and expense growth rates, changes in working capital, and selection of an appropriate discount
rate, as applicable. The use of different assumptions would increase or decrease discounted future operating cash flows or earnings
projections and could, therefore, change impairment determination.
We adopted FASB Statement No. 142, Goodwill and Other Intangible Assets, effective October 1, 2001. FASB Statement No. 142 requires
goodwill and other intangible assets with indefinite useful lives not be amortized, and that impairment of such assets be evaluated
as discussed above at least annually.
We evaluate deferred tax assets based on future earnings projections. An asset’s value is deemed impaired if the earnings projections
do not substantiate the carrying value of the asset. The estimation of such amounts requires significant management judgment with
respect to revenue and expense growth rates, changes in working capital, and other assumptions, as applicable. The use of different
assumptions would increase or decrease future earnings projections and could, therefore, change the determination of whether an
asset is realizable.
See Note 2(h), Note 2(i), Note 2(x), Note 4, Note 5, and Note 9 to the Consolidated Financial Statements for more information about
these assets.
Revenue Recognition and Concentration of Credit Risk
We recognize revenue from product sales upon shipment to the customer, which is the point at which all risks and rewards of own-
ership of the product are passed, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an
arrangement exists; the price to the buyer is fixed or determinable; and collectibility is deemed reasonably assured. We are generally
not obligated to allow for, and our general policy is not to accept, product returns.
We enter into various promotional arrangements, primarily with retail customers, including arrangements entitling such retailers
to cash rebates from us based on the level of their purchases, which require us to estimate and accrue the estimated costs of the
promotional programs. These costs are generally treated as a reduction of net sales.
We also enter into promotional arrangements targeted to the consumer. Such arrangements are treated as either a reduction of
net sales or an increase in cost of sales, based on the type of promotional program. The income statement characterization of our
promotional arrangements complies with EITF 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products).
Cash consideration, or an equivalent thereto, given to a customer is generally classified as a reduction of net sales. If we provide a
customer anything other than cash, the cost of the consideration is classified as an expense and included in cost of sales.
For all types of promotional arrangements and programs, we monitor our commitments and use statistical measures and past
experience to determine the amounts to be recorded for the estimate of the earned, but unpaid, promotional costs. The terms of
our customer-related promotional arrangements and programs are individualized to each customer and are generally documented
through written contracts, correspondence or other communications with the individual customers.
We also enter into various contractual arrangements, primarily with retail customers, which require us to make an upfront cash, or
“slotting” payment, to secure the right to distribute through such customer. We capitalize slotting payments, provided the payments
are supported by a time or volume based contractual arrangement with the retailer, and will amortize the associated payment over
the appropriate time or volume based term of the contractual arrangement. The amortization of the slotting payment is treated as a
reduction in net sales and the corresponding asset is included in “Deferred charges and other” in our Consolidated Balance Sheets.
Our trade receivables subject us to credit risk which is evaluated based on changing economic, political, and specific customer con-
ditions. We assess these risks and make provisions for collectibility based on our best estimate of the risks presented and information
available at the date of the financial statements. The use of different assumptions may change the estimate of collectibility. We extend
credit to our customers based upon an evaluation of the customer’s financial condition and credit history and generally do not
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Rayovac Corporation and Subsidiaries