Rayovac 2003 Annual Report Download - page 39

The costs of temporary displays are capitalized as a prepaid asset and are included in Prepaid expenses and other and are expensed in
the period in which they are shipped to customers. Permanent fixtures are capitalized as a prepaid asset and are included in Prepaid
expenses and other, and once they are shipped to customers are reflected in Deferred charges and other and are amortized over an
estimated useful life of one to two years.
(g) Inventories The Company’s inventories are valued at the lower of cost or market. Cost for the majority of inventories is deter-
mined using the first-in, first-out (FIFO) method with costs for other inventories determined primarily using the average or last-in,
first-out (LIFO) cost method. As of September 30, 2003, the excess of current replacement cost over LIFO cost of inventories was
not significant.
(h) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation on plant and equipment is calcu-
lated 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 approximately 5 to 19 years. Excess cost over fair
value of net assets acquired (goodwill) and trade name intangibles 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 comparing 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 (x), 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 are book overdrafts on disbursement accounts that 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 recog-
nized 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.
(m) Foreign Currency Translation Assets and liabilities of the Company’s foreign subsidiaries are translated at the rate of exchange
existing at year-end, with revenues, expenses, and cash flows translated at the average of the monthly exchange rates. Adjustments
resulting from translation of the financial statements are recorded as a component of accumulated other comprehensive income
(“OCI”). Also included in OCI are the effects of exchange rate changes on intercompany balances of a long-term nature and trans-
actions designated as hedges of net foreign investments.
Notes to Consolidated Financial Statements
Rayovac Corporation and Subsidiaries
(In thousands, except per share amounts)