Sunbeam 2007 Annual Report Download - page 76

estimated to be received after deducting estimated amounts for product returns, discounts and allowances. The
Company estimates future product returns based upon historical return rates and its reasonable judgment.
Cost of Sales
The Company’s cost of sales includes the costs of raw materials and finished goods purchases,
manufacturing costs and warehouse and distribution costs.
Advertising Costs
Advertising costs consist primarily of ad demo, cooperative advertising, media placement and promotions,
and are expensed as incurred. The amounts charged to advertising and included in selling, general and
administrative (“SG&A”) expenses in the Consolidated Statements of Income for 2007, 2006 and 2005 were
$104.3, $68.4 and $58.1, respectively.
Product Warranty Costs
The Company recognizes warranty costs based on an estimate of amounts required to meet future warranty
obligations arising as a cost 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 advertising 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 carryforward period. A portion of this valuation allowance
remained as of December 31, 2007 and 2006 (see Note 12).
Components of “Accumulated other comprehensive income” are presented 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 liabilities approximate their fair market values due to the short-term maturities of these instruments. The
fair market value of the Company’s 7
1
⁄ 2 % 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 similar terms and maturities (see Note 9).
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