Sunbeam 2009 Annual Report Download - page 31

Significant Accounting Policies and Critical Estimates
The Company’s financial statements are prepared in accordance with GAAP, which require us to make judgments, estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. The following list of critical 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 the Consolidated Financial Statements. The following represents a
summary of the Company’s 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/or estimates. In many
cases, the accounting treatment for a particular transaction is specifically directed by GAAP with no need for management’s judgment in
their application.
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. The Company estimates future product returns, discounts and allowances 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 judg-
ment 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, 2009 and 2008 are fairly stated based upon these
estimates, the ultimate resolution of these tax positions could result in favorable or unfavorable adjustments to its consolidated financial state-
ments and such adjustments could be material. See Note 12 to the consolidated financial statements for further information regarding taxes.
Goodwill and Indefinite-Lived Intangibles
The application of the purchase method of accounting for business combinations requires the use of significant estimates and
assumptions in determining the fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price. The
estimates of the fair value of the assets acquired and liabilities assumed are based upon assumptions believed to be reasonable using
established valuation techniques that consider a number of factors and when appropriate, valuations performed by independent third party
appraisers.
As a result of acquisitions in prior years, the Company has significant intangible assets on its balance sheet that include goodwill
and indefinite-lived intangibles (primarily trademarks and tradenames). The Company’s goodwill and indefinite-lived intangibles are tested
and reviewed for impairment annually (during the fourth quarter, which coincides with the Company’s strategic planning process), or more
frequently if facts and circumstances warrant, using various valuation methods, such as the discounted cash flows and market multiple
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Management’s Discussion and Analysis
Jarden Corporation Annual Report 2009