Rayovac 2007 Annual Report Download - page 42

40 SPECTRUM BRANDS | 2007 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Spectrum Brands, Inc.
transactions have been eliminated. The Company’s fi scal year
ends September 30. References herein to 2007, 2006 and 2005
refer to the fi scal years ended September 30, 2007, 2006 and
2005, respectively.
The Company’s Consolidated Financial Statements presented
herein include the results of Jungle Labs subsequent to the Sep-
tember 1, 2005 date of acquisition, the results of operations for
Tetra subsequent to the April 29, 2005 date of acquisition, and the
results of operations for United subsequent to the February 7, 2005
date of acquisition. (See also Note 17, Acquisitions, for additional
information on the Jungle Labs, Tetra, and United acquisitions).
(b) Revenue Recognition
The Company recognizes revenue from product sales generally
upon delivery to the customer or the shipping point in situations
where the customer picks up the product or where delivery terms
so stipulate. 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
reasonably assured. The Company is not obligated to allow for,
and the Company’s general policy is not to accept, product
returns associated with battery sales. The Company does accept
returns in specifi c instances related to its shaving, grooming,
personal care, lawn and garden, household and pet products.
The provision for customer returns is based on historical sales
and returns and other relevant information. The Company esti-
mates and accrues the cost of returns, which are treated as a
reduction of Net sales.
The Company enters into various promotional arrangements,
primarily with retail customers, including arrangements entitling
such retailers to cash rebates from the Company based on the
level of their purchases, which require the Company to estimate
and accrue the estimated costs of the promotional programs.
These costs are treated as a reduction of Net sales.
The Company also enters into promotional arrangements that
target the ultimate consumer. Such arrangements are treated as
either a reduction of Net sales or an increase of Cost of goods
sold, based on the type of promotional program. The income
statement presentation of the Company’s promotional arrange-
ments complies with the Emerging Issues Task Force (EITF)
No. 01-09, “Accounting for Consideration Given by a Vendor to
a Customer (Including a Reseller of the Vendor’s Products).”
For all types of promotional arrangements and programs, the
Company monitors its commitments and uses various measures,
including past experience, to determine amounts to be recorded
for the estimate of the earned, but unpaid, promotional costs.
The terms of the Company’s customer-related promotional
arrangements and programs are tailored to each customer and
are documented through written contracts, correspondence or
other communications with the individual customers.
The Company also enters into various arrangements, primarily
with retail customers, which require the Company to make
upfront cash, or “slotting” payments, to secure the right to dis-
tribute through such customers. The Company capitalizes slot-
ting payments, provided the payments are supported by a time or
volume-based arrangement with the retailer, and amortizes the
associated payment over the appropriate time or volume-based
term of the arrangement. The amortization of slotting payments
is treated as a reduction in Net sales and a corresponding asset is
reported in Deferred charges and other in the accompanying
Consolidated Balance Sheets.
(c) Use of Estimates
The preparation of fi nancial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the fi nancial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
(d) Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows,
the Company considers all highly liquid debt instruments pur-
chased with original maturities of three months or less to be
cash equivalents.
(e) Concentrations of Credit Risk, Major Customers and Employees
Trade receivables subject the Company to credit risk. Trade
accounts receivable are carried at net realizable value. The Com-
pany extends credit to its customers based upon an evaluation of
the customer’s fi nancial condition and credit history, but gener-
ally does not require collateral. The Company monitors its cus-
tomers’ credit and fi nancial condition based on changing
economic conditions and will make adjustments to credit policies
as required. Provision for losses on uncollectible trade receivables
are determined principally on the basis of past collection experi-
ence applied to ongoing evaluations of the Company’s receivables
and evaluations of the risks of nonpayment for a given customer.
The Company has a broad range of customers, including many
large retail outlet chains, one of which accounts for a signifi cant
percentage of its sales volume. This major customer represented
approximately 19%, 20% and 19% of net sales during 2007,
2006 and 2005, respectively. This major customer also repre-
sented approximately 11% and 11%, respectively, of Trade
account receivables, net as of September 30, 2007 and 2006.