Sunbeam 2006 Annual Report Download - page 53

Product Warranty Costs
The Company recognizes warranty costs based on an estimate of amounts required to meet future warranty obligations
arising as part of the sale of its products. The Company accrues an estimated liability at the time of a product sale based on
historical claim rates applied to current period sales, as well as any information applicable to current product sales that may
indicate a deviation from such historical claim rate trends. Warranty reserves are included within “Other current liabilities”
and “Other non-current liabilities” in the Company’s Consolidated Balance Sheets.
Sales Incentives and Trade Promotion Allowances
The Company offers sales incentives and promotional programs to its reseller customers from time to time in the normal
course of business. These incentives and promotions typically include arrangements known as slotting fees, cooperative adver-
tising and buydowns, and the Company accounts for these transactions consistent with the requirements of FASB Emerging
Issues Task Force (“EITF”) No. 01-9“Accounting for Consideration Given by a Vendor to a Customer (including a Reseller
of the Vendor’s Products).” The majority of such arrangements are recorded as a reduction to net sales in the Company’s
Consolidated Statements of Income. However, pursuant to the applicable provisions of EITF No. 01-9,the Company does
include consideration granted in certain of these transactions as SG&A expenses in its Consolidated Statements of Income.
Income Taxes
Deferred taxes are provided for differences between the financial statement and tax basis of assets and liabilities using enacted
tax rates. The Company established a valuation allowance against a portion of the net tax benefit associated with all carryforwards
and temporary differences in a prior year, as it was more likely than not that these would not be fully utilized in the available car-
ryforward period. A portion of this valuation allowance remained as of December 31,2006 and 2005 (see Note 12).
Components of “Accumulated other comprehensive income” arepresented net of tax at the applicable statutory rates and
are primarily generated domestically.
Fair Value and Credit Risk of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable, notes payable, accounts payable and accrued liabili-
ties approximate their fair market values due to the short-term maturities of these instruments. The fair market value of the
Company’s senior subordinated notes was determined based on quoted market prices (see Note 9). The fair market value of
the Company’s other long-term debt was estimated using interest rates currently available to the Company for debt with simi-
lar terms and maturities (see Note 9).
The Company enters into interest rate swaps to manage interest rate risk on its variable rate debt. The Company desig-
nates the interest rate swaps as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments.
Interest expense is adjusted to include the payment made or received under the swap agreements. The fair market value of the
swap agreements was estimated based on the current market value of similar instruments (see Note 10).
The Company uses forward foreign currency contracts to mitigate the foreign currency exchange rate exposure on the
cash flows related to forecasted inventory purchases. The derivatives used to hedge these forecasted transactions that meet the
criteria for hedge accounting are accounted for as cash flow hedges. The effective portion of the gains or losses on these
derivatives are deferred as a component of accumulated other comprehensive income and are recognized in earnings at the
same time that the hedged item affects earnings and are included in the same caption in the statement of operations as the
underlying hedged item.
Financial instruments that potentially subject the Company to credit risk consist primarily of trade receivables and inter-
est-bearing investments. Trade receivable credit risk is limited due to the diversity of the Company’s customers and the
Company’s ongoing credit review procedures. Collateral for trade receivables is generally not required. The Company places
its interest-bearing cash equivalents with major financial institutions.
Unless otherwise disclosed in the notes to the consolidated financial statements, the estimated fair value of financial assets
and liabilities approximates carrying value.
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Notes to Consolidated Financial Statements
Jarden Corporation 2006 Annual Report