Rayovac 2007 Annual Report Download - page 34

32 SPECTRUM BRANDS | 2007 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.
charges refl ected in operating expenses include, but are not limited
to, termination and related costs, any asset impairments relating
to the administrative functions and other costs directly related to
the initiatives implemented.
The costs of plans to (i) exit an activity of an acquired company,
(ii) involuntarily terminate employees of an acquired company or
(iii) relocate employees of an acquired company are measured
and recorded in accordance with the provisions of the EITF Issue
No. 95-3, “Recognition of Liabilities in Connection with a Pur-
chase Business Combination” (“EITF 95-3”). Under EITF 95-3, if
certain conditions are met, such costs are recognized as a liability
assumed as of the consummation date of the purchase business
combination and included in the allocation of the acquisition
cost. Costs related to terminated activities or employees of the
acquired company that do not meet the conditions prescribed in
EITF 95-3 are treated as restructuring and related charges and
expensed as incurred.
See Note 16, Restructuring and Related Charges, of Notes to
the Consolidated Financial Statements included in this Annual
Report on Form 10-K for a more complete discussion of our
restructuring initiatives and related costs.
Loss Contingencies
Loss contingencies are recorded as liabilities when it is probable
that a loss has been incurred and the amount of the loss can be rea-
sonably estimated. The outcome of existing litigation, the impact of
environmental matters and pending or potential examinations by
various taxing authorities are examples of situations evaluated as
loss contingencies. Estimating the probability and magnitude of
losses is often dependent upon management’s judgment of poten-
tial actions by third parties and regulators. It is possible that
changes in estimates or an increased probability of an unfavorable
outcome could materially affect future results of operations.
See further discussion in Item 3, “Legal Proceedings,” and Note
14, Commitments and Contingencies, of Notes to the Consoli-
dated Financial Statements included in this Annual Report on
Form 10-K.
Other Significant Accounting Policies
Other signifi cant accounting policies, primarily those with
lower levels of uncertainty than those discussed above, are also
critical to understanding the Consolidated Financial State-
ments. The Notes to the Consolidated Financial Statements
included in this Annual Report on Form 10-K contain additional
information related to our accounting policies and should be
read in conjunction with this discussion.
Recently Issued Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 provides guidance for
using fair value to measure assets and liabilities. The FASB
believes SFAS 157 also responds to investors’ requests for
expanded information about the extent to which companies
measure assets and liabilities at fair value, the information used
to measure fair value and the effect of fair value measurements
on earnings. SFAS 157 applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value but
does not expand the use of fair value in any new circumstances.
Under SFAS 157, fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants in the market in which
the reporting entity transacts. In SFAS 157, the FASB clarifi es the
principle that fair value should be based on the assumptions
market participants would use when pricing the asset or liability.
In support of this principle, SFAS 157 establishes a fair value
hierarchy that prioritizes the information used to develop those
assumptions. The fair value hierarchy gives the highest priority to
quoted prices in active markets and the lowest priority to unob-
servable data, e.g., the reporting entity’s own data. Under SFAS
157, fair value measurements would be separately disclosed by
level within the fair value hierarchy. The provisions of SFAS 157
for fi nancial assets and liabilities, as well as any other assets and
liabilities that are carried at fair value on a recurring basis in
fi nancial statements, are effective for fi nancial statements issued
for fi scal years beginning after November 15, 2007, and interim
periods within those fi scal years. The FASB did, however, provide
a one year deferral for the implementation of SFAS 157 for other
non-fi nancial assets. Earlier application is encouraged, provided
that the reporting entity has not yet issued fi nancial statements
for that fi scal year, including any fi nancial statements for an
interim period within that fi scal year. We are currently evaluating
the impact that SFAS 157 will have on our fi nancial condition,
results of operations or cash fl ows.
In July 2006, the FASB issued FASB Interpretation (“FIN”)
No. 48, “Accounting for Uncertainty in Income Taxes – An Inter-
pretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifi es
the accounting for uncertainty in income taxes recognized in an
enterprise’s fi nancial statements in accordance with SFAS 109.
FIN 48 also prescribes a recognition threshold and measurement
attribute for the fi nancial statement recognition and measure-
ment of a tax position taken or expected to be taken in a tax return.
FIN 48 provides guidance on de-recognition, classifi cation, inter-
est and penalties, accounting in interim periods, disclosure and
transition. The evaluation of a tax position in accordance with
FIN 48 is a two-step process. The fi rst step is recognition, whereby
the enterprise determines whether it is more likely than not that a
tax position will be sustained upon examination, including reso-
lution of any related appeals or litigation processes, based on the
technical merits of the position. In evaluating whether a tax posi-
tion has met the more-likely-than-not recognition threshold, the
enterprise should presume that the position will be examined by
the appropriate taxing authority that has full knowledge of all
relevant information. The second step is measurement whereby a