Sunbeam 2005 Annual Report Download - page 30

Management’s Discussion and Analysis of Financial Condition and
Results of Operations (cont’d)
Deferred tax assets
We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is
more likely than not to be realized. While we have considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were
to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period such determination was
made. Likewise, should we determine that we would be able to realize our deferred tax assets in the future
in excess of our net recorded amount, an adjustment to the deferred tax assets would increase income in
the period such determination was made.
Intangible assets
We have significant intangible assets on our balance sheet that include goodwill, trademarks and other
intangibles fair valued in conjunction with acquisitions. The valuation and classification of these assets and
the assignment of amortizable lives involves significant judgments and the use of estimates. The testing of
these intangibles under established guidelines for impairment also requires significant use of judgment and
assumptions (such as cash flows, terminal values and discount rates). Our assets are tested and reviewed for
impairment on an ongoing basis under the established accounting guidelines. Changes in business
conditions could potentially require adjustments to these asset valuations.
Pension and Postretirement Plans
We record annual amounts relating to our pension and postretirement plans based on calculations
which include various actuarial assumptions, including discount rates, assumed rates of return,
compensation increases, turnover rates and healthcare cost trend rates. We review these actuarial
assumptions on an annual basis and make modifications to the assumptions based on current rates and
trends when we deem it appropriate to do so. The effect of modifications are generally recorded or
amortized over future periods. We believe that the assumptions utilized in recording our obligations under
our plans are reasonable based on experience, market conditions and input from our actuaries and
investment advisors.
Product liability
As a consumer goods manufacturer and distributor, we face the risk of product liability and related
damages for substantial money damages, product recall actions and higher than anticipated rates of
warranty returns or other returns of goods. Each year we set our product liability insurance program, which
is an occurrence-based program based on current and historical claims experience and the availability and
cost of related insurance.
Stock Based Compensation Expense
We adopted SFAS No. 123, Share Based Payments (Revised 2004), (“SFAS 123R”) on October 1, 2005.
SFAS 123R requires the measurement and recognition of all unvested outstanding stock based payment
awards made to our employees and directors based on estimated fair value at date of grant. Under SFAS
123R, compensation cost related to stock options and restricted stock awards expected to vest, as well as to
the Company’s employee stock purchase plans, is recognized in our Consolidated Statements of Income.
Warranty
We recognize warranty costs based on an estimate of amounts required to meet future warranty
obligations arising as part of the sale of our products. In accordance with SFAS No. 5 “Accounting for
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