Energizer 2011 Annual Report Download - page 52

ENERGIZER HOLDINGS, INC.
(Dollars in millions, except per share and percentage data)
They include: the timing of new product launches by competitors or by the Company, the timing of advertising, promotional,
merchandising or other marketing activities by competitors or by the Company, and the timing of retailer merchandising
decisions and actions.
Environmental Matters
The operations of the Company, like those of other companies, are subject to various federal, state, foreign and local laws and
regulations intended to protect the public health and the environment. These regulations relate primarily to worker safety, air
and water quality, underground fuel storage tanks and waste handling and disposal. The Company has received notices from the
U.S. Environmental Protection Agency, state agencies and/or private parties seeking contribution, that it has been identified as a
“potentially responsible party” (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act, and
may be required to share in the cost of cleanup with respect to eight federal “Superfund” sites. It may also be required to share
in the cost of cleanup with respect to state-designated sites or other sites outside of the U.S.
Exclusive of the impact of the acquisition of ASR, accrued environmental costs at September 30, 2011 were $7.1, of which
$1.6 is expected to be spent in fiscal 2012. This accrual is not measured on a discounted basis. In addition, the Company has
accrued environmental costs included in the ASR opening balance sheet at the time of acquisition of approximately $13, of
which approximately $1 is expected to be spent in fiscal 2012. The ASR liability was measured at the time of the acquisition
using a discount rate of 4%.
It is difficult to quantify with certainty the cost of environmental matters, particularly remediation and future capital
expenditures for environmental control equipment. Nevertheless, based on information currently available, the Company
believes the possibility of material environmental costs in excess of the accrued amount is unlikely. Total environmental capital
expenditures and operating expenses are not expected to have a material effect on our total capital and operating expenditures,
consolidated earnings or competitive position. However, current environmental spending estimates could be modified as a
result of changes in our plans, changes in legal requirements, including any requirements related to global climate change, or
other factors.
Inflation
Management recognizes that inflationary pressures may have an adverse effect on the Company, through higher material, labor
and transportation costs, asset replacement costs and related depreciation, and other costs. In general, the Company had been
able to offset or minimize inflation effects through other cost reductions and productivity improvements through mid-2005,
thus inflation was not a significant factor to that point. In recent years, the cost of zinc, nickel, steel, oil and other commodities
used in the Company’s production and distribution have become more volatile. Looking forward, and based on current market
conditions and our zinc hedging program, which has locked in the vast majority of our costs for zinc in fiscal 2012, we expect a
meaningful increase in product costs in fiscal 2012 in comparison to fiscal 2011 driven by commodity costs and other
inflationary increases. We cannot predict with any degree of certainty the impact of future fluctuations in the costs of
commodities and raw materials.
Critical Accounting Policies
The Company identified the policies below as critical to its business operations and the understanding of its results of
operations. The impact and any associated risks related to these policies on its business operations is discussed throughout
Management’s Discussion and Analysis of Results of Operations and Financial Condition, where such policies materially affect
the reported and expected financial results.
Preparation of the financial statements in conformity with GAAP in the U.S. requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. On an ongoing basis, the Company evaluates its estimates, including those related
to customer programs and incentives, product returns, inventories, intangible assets and other long-lived assets, income taxes,
financing, pensions and other postretirement benefits, and contingencies. Actual results could differ from those estimates. This
listing is not intended to be a comprehensive list of all of the Company’s accounting policies.
• Revenue Recognition The Company derives revenues from the sale of its products. Revenue is recognized when title,
ownership and risk of loss pass to the customer. When discounts are offered to customers for early payment, an
estimate of the discounts is recorded as a reduction of net sales in the same period as the sale. Standard sales terms are
final and, except for seasonal sun care returns, which are discussed in detail in the next paragraph, returns or
exchanges are not permitted unless a special exception is made; reserves are established and recorded in cases where
the right of return does exist for a particular sale.
Under certain circumstances, we allow customers to return sun care products that have not been sold by the end of the
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