NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company periodically evaluates whether events or circumstances have
occurred that indicate that long-lived assets may not be recoverable or that the
remaining useful life may warrant revision. When such events or circumstances
are present, the Company assesses the recoverability of long-lived assets by
determining whether the carrying value will be recovered through the expected
undiscounted future cash flows. In the event the sum of the expected
undiscounted future cash flows resulting from the use of the asset is less than
the carrying value of the asset, an impairment loss equal to the excess of the
asset's carrying value over its fair value is recorded. To date, no such
impairment has been recognized.
Other assets includes approximately $12.1 million related to a non-current
receivable from a client of the Company. During fiscal 1999, the Company entered
into a long-term contractual agreement whereby the Company finances certain
inventory owned by the client. The Company warehouses this client inventory and
distributes it upon the sale to third parties by the client, who controls the
disposition of this inventory. The Company has the contractual right to collect
the receivable in full at the conclusion of the contract. In addition to service
fees, the Company charges the client an asset management fee, a portion of which
results in interest income.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
For the Company's Canadian operations, the local currency is the functional
currency. All assets and liabilities are translated at exchange rates in effect
at the end of the period, and income and expense items are translated at the
average exchange rates for the period. Translation adjustments are reported as a
separate component of shareholder's equity.
For the Company's European operations, the U.S. dollar is the functional
currency. Monetary assets and liabilities are translated at the rates of
exchange on the balance sheet date and certain assets (notably inventory, and
property and equipment) are translated at historical rates. Income and expense
items are translated at average rates of exchange for the period except for
those items of expense, which relate to assets, which are translated at
historical rates. The gains and losses from foreign currency transactions and
translation related to these subsidiaries are included in net income and have
not been material.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109 "Accounting for Income Taxes", deferred taxes reflect the impact of
temporary differences between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
These differences relate primarily to provisions for doubtful accounts, reserves
for inventory, book versus tax depreciation differences, and certain accrued
expenses deducted for book purposes but not yet deductible for tax purposes.
(See Note 7.)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates fair value based on market information and
appropriate valuation methodologies. Fair value is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. The fair values of all financial
instruments approximate their carrying amounts in the accompanying combined