H O N I N D U S T R I E S I n c . a n d S U B S I D I A R I E S costs are included in selling and administrative expense. Rebates,  discounts, and other marketing program expenses directly related to  the sale are recorded as a reduction to net sales. Marketing program  accruals require the use of management estimates and the consider- ation of contractual arrangements subject to interpretation. Customer  sales that reach certain award levels can affect the amount of such  estimates, and actual results could differ from these estimates. Future  market conditions may require increased incentive offerings, possibly  resulting in an incremental reduction in net sales at the time the  incentive is offered. Allowance for doubtful accounts receivable  – The allowance  for receivables is based on several factors including overall customer  credit quality, historical write-off experience, and specific account  analysis that project the ultimate collectibility of the account. As such,  these factors may change over time, causing the reserve level to adjust  accordingly.  When it is determined that a customer is unlikely to pay, a  charge is recorded to bad debt expense in the income statement and the  allowance for doubtful accounts is increased. When it becomes certain  the customer cannot pay, the receivable is written off by removing the  accounts receivable amount and reducing the allowance for doubtful  accounts accordingly. At January 3, 2004, there was approximately $192 million in  outstanding accounts receivable and $11 million recorded in the allow- ance for doubtful accounts to cover all potential future customer  non-payments. However, if economic conditions deteriorate signifi- cantly or one of our large customers were to declare bankruptcy, a  larger allowance for doubtful accounts might be necessary. The  allowance for doubtful accounts was approximately $10 million and  $17 million at year end 2002 and 2001, respectively. Inventory valuation  – The Company values 96% of its inventory by  the last-in, first-out (LIFO) method. Additionally, the Company evalu- ates inventory reserves in terms of excess and obsolete exposure. This  evaluation includes such factors as anticipated usage, inventory turn- over, inventory levels, and ultimate product sales value. As such, these  factors may change over time, causing the reserve level to adjust  accordingly.  Long-lived assets  – Long-lived assets are reviewed for impairment  as events or changes in circumstances occur indicating that the amount  The Company also determines the fair value of an indefinite  lived trademark on an annual basis or whenever indication of impair- ment exists. The Company has evaluated its trademark for impairment  and has determined that the fair market value of the trademark  exceeds its carrying value, so no impairment was recognized. The car- rying value of the trademark was approximately $8 million at the end  of fiscal 2003. Management’s assumptions about future cash flows for the  reporting units require significant judgment and actual cash flows in  the future may differ significantly from those forecasted today. We  believe our assumptions used in discounting future cash flows would  have no impact on the reported carrying amount of goodwill. The esti- mated future cash flow for any reporting unit could be reduced by 50%  without decreasing the fair value to less than the carrying value. Goodwill and other intangibles – In accordance with the  Statement of Financial Accounting Standards (“SFAS”) No. 142, the  Company evaluates its goodwill for impairment on an annual basis  based on values at the end of third quarter or whenever indicators of  impairment exist. The Company has evaluated its goodwill for impair- ment and has determined that the fair value of the reporting units  exceeded their carrying value, so no impairment of goodwill was recog- nized. Goodwill of approximately $192 million is shown on the  consolidated balance sheet as of the end of fiscal 2003. The Company’s continuous focus on improving the manufac- turing process tends to increase the likelihood of assets being replaced;  therefore, the Company is constantly evaluating the expected useful  lives of its equipment, which can result in accelerated depreciation.  Additionally, the Company recorded losses on the disposal of assets in  the amount of $1 million and $5 million in 2003 and 2002, respec- tively, as a result of its rapid continuous improvement initiatives. of the asset reflected in the Company’s balance sheet may not be recov- erable. An estimate of undiscounted cash flows produced by the asset,  or the appropriate group of assets, is compared to the carrying value to  determine whether impairment exists. The estimates of future cash  flows involve considerable management judgment and are based upon  assumptions about future operating performance. The actual cash flows  could differ from management’s estimates due to changes in business  conditions, operating performance, and economic conditions. Asset  impairment charges associated with the Company’s restructuring  activities are discussed in the Restructuring Related Charges note. 33