Sunbeam 2007 Annual Report Download - page 61

accounting policies is not intended to be a comprehensive list of all its accounting policies. The Company’s
significant accounting policies are more fully described in Note 1—Business and Significant Accounting Policies
to Item 8.— Financial Statements and Supplementary Data . The following represents a summary of its critical
accounting policies, defined as those policies that the Company believes are the most important to the portrayal
of its financial condition and results of operations, and/or require management’s significant judgments and
estimates.
Revenue recognition and allowance for product returns
The Company recognizes revenues at the time of product shipment or delivery, depending upon when title
passes, to unaffiliated customers, and when all of the following have occurred: a firm sales agreement is in place,
pricing is fixed or determinable, and collection is reasonably assured. Revenue is recognized as the net amount
estimated to be received after deducting estimated amounts for product returns, discounts and allowances
(collectively “returns”). The Company estimates future product returns based upon historical return rates and its
reasonable judgment.
Allowance for accounts receivable
The Company maintains an allowance for doubtful accounts for estimated losses that may result from the
inability of its customers to make required payments. That estimate is based on historical collection experience,
current economic and market conditions, and a review of the current status of each customer’s trade accounts
receivable. If the financial condition of its customers were to deteriorate or its judgment regarding their financial
condition was to change negatively, additional allowances may be required resulting in a charge to income in the
period such determination was made. Conversely, if the financial condition of its customers were to improve or
its judgment regarding their financial condition was to change positively, a reduction in the allowances may be
required resulting in an increase in income in the period such determination was made.
Allowance for inventory obsolescence
The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the
difference between the cost of the inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less favorable than those projected, additional
inventory write-downs may be required resulting in a charge to income in the period such determination was
made. Conversely, if actual market conditions are more favorable than those projected, a reduction in the write
down may be required resulting in an increase in income in the period such determination was made.
Income taxes
The Company records a valuation allowance to reduce its deferred tax assets to the amount that the
Company believes is more likely than not to be realized. While the Company has considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would not be able to realize all or part of its 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 the Company determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets
would increase income in the period such determination was made.
Additionally, the Company recognizes tax benefits for certain tax positions based upon judgments as to
whether it is more likely than not that a tax position will be sustained upon examination. The measurement of tax
positions that meet the more-likely-than-not recognition threshold are based in part on estimates and assumptions
as to be the probability of an outcome, along with estimated amounts to be realized upon any settlement. While
the Company believes the resulting tax balances at December 31, 2007 and 2006 are fairly stated based upon
these estimates, the ultimate resolution of these tax positions could result in favorable or unfavorable adjustments
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