Rayovac 2007 Annual Report Download - page 32

30 SPECTRUM BRANDS | 2007 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.
Business in order to refl ect the estimated fair value of this busi-
ness. Such estimated fair value was based on a range of estimated
sales values, taking into account current market conditions, pro-
vided by independent third-party advisors. If and when a sale is
consummated, the actual fair value at that time may vary from the
estimated fair value refl ected herein.
In accordance with SFAS No. 109 “Accounting for Income
Taxes” (SFAS 109), we establish valuation allowances for deferred
tax assets when we estimate it is more likely than not that the tax
assets will not be realized. We base these estimates on projections
of future income, including tax-planning strategies, by individual
tax jurisdictions. Changes in industry and economic conditions
and the competitive environment may impact the accuracy of our
projections. In accordance with SFAS 109, during each reporting
period we assess the likelihood that our deferred tax assets will be
realized and determine if adjustments to the valuation allowance
are appropriate. As a result of this assessment, during Fiscal
2007 and Fiscal 2006 we recorded a non-cash deferred income
tax charge of approximately $180 million and $29 million,
respectively, related to increasing the valuation allowance against
our net deferred tax assets.
See Note 2(h), Signifi cant Accounting Policies and Practices –
Property, Plant and Equipment; Note 2(i), Signifi cant Account-
ing Policies and Practices – Intangible Assets; Note 4, Property,
Plant and Equipment; Note 5, Assets Held for Sale; Note 6,
Intangible Assets; Note 10, Income Taxes; and Note 11, Discon-
tinued Operations, of Notes to Consolidated Financial Statements
included in this Annual Report on Form 10-K for more informa-
tion about these assets.
Revenue Recognition and Concentration of Credit Risk
We recognize revenue from product sales generally upon deliv-
ery to the customer or the shipping point in situations where the
customer picks up the product or where delivery terms so stipu-
late. This represents the point at which title and all risks and
rewards of ownership of the product are passed, provided that:
there are no uncertainties regarding customer acceptance; there is
persuasive evidence that an arrangement exists; the price to the
buyer is fi xed or determinable; and collectibility is deemed reason-
ably assured. We are generally not obligated to allow for, and our
general policy is not to accept, product returns for battery sales.
We do accept returns in specifi c instances related to our electric
shaving and grooming, electric personal care, lawn and garden,
household insect control and pet supply products. The provision
for customer returns is based on historical sales and returns and
other relevant information. We estimate and accrue the cost of
returns, which are treated as a reduction of net sales.
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 pur-
chases, which require us to estimate and accrue the costs of the
promotional programs. These costs are generally treated as a
reduction of net sales.
We also enter into promotional arrangements that target the
ultimate 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 presenta-
tion of our promotional arrangements complies with Emerging
Issues Task Force (“EITF”) No. 01-09, “Accounting for Consider-
ation 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 classifi ed as a reduction
of net sales. If we provide a customer anything other than cash,
the cost of the consideration is classifi ed 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 tailored to each customer and are generally docu-
mented through written contracts, correspondence or other
communications with the individual customers.
We also enter into various 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 sup-
ported by a time or volume-based arrangement with the retailer,
and amortize the associated payment over the appropriate time or
volume-based term of the arrangement. The amortization of slot-
ting payments is treated as a reduction in net sales and a corre-
sponding asset is reported in Deferred charges and other in our
Consolidated Balance Sheets included in this Annual Report on
Form 10-K.
Our trade receivables subject us to credit risk which is evaluated
based on changing economic, political and specifi c customer condi-
tions. 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 fi nancial statements. The use of different
assumptions may change our estimate of collectibility. We extend
credit to our customers based upon an evaluation of the customer’s
fi nancial condition and credit history and generally do not require
collateral. Our credit terms generally range between 30 and 90
days from invoice date, depending upon the evaluation of the cus-
tomer’s fi nancial condition and history. We monitor our customers’
credit and fi nancial conditions in order to assess whether the eco-
nomic conditions have changed and adjust our credit policies with
respect to any individual customer as we determine appropriate.
These adjustments may include, but are not limited to, restricting
shipments to customers, reducing credit limits, shortening credit
terms, requiring cash payments in advance of shipment or securing
credit insurance.