Energizer 2011 Annual Report Download - page 53

ENERGIZER HOLDINGS, INC.
(Dollars in millions, except per share and percentage data)
sun care season, which is normal practice in the sun care industry. We record sales at the time the title, ownership and
risk of loss pass to the customer. The terms of these sales vary but, in all instances, the following conditions are met:
the sales arrangement is evidenced by purchase orders submitted by customers; the selling price is fixed or
determinable; title to the product has transferred; there is an obligation to pay at a specified date without any
additional conditions or actions required by the Company; and collection is reasonably assured. Simultaneous with the
sale, we reduce sales and cost of sales, and reserve amounts on our consolidated balance sheet for anticipated returns
based upon an estimated return level, in accordance with GAAP. Customers are required to pay for the sun care
product purchased during the season under the required terms. We generally receive returns of U.S. sun care products
from September through January following the summer sun care season. We estimate the level of sun care returns
using a variety of inputs including historical experience, consumption trends during the sun care season and inventory
positions at key retailers as the sun care season progresses. We monitor shipment activity and inventory levels at key
retailers during the season in an effort to more accurately estimate potential returns. This allows the Company to
manage shipment activity to our customers, especially in the latter stages of the sun care season, to reduce the
potential for returned product. The level of returns may fluctuate from our estimates due to several factors including
weather conditions, customer inventory levels, and competitive activity. Based on our fiscal 2011 sun care shipments,
each percentage point change in our returns rate would have impacted our reported net sales by $3.0 and our reported
operating income by $2.7.
The Company offers a variety of programs, primarily to its retail customers, designed to promote sales of its products.
Such programs require periodic payments and allowances based on estimated results of specific programs and are
recorded as a reduction to net sales. The Company accrues, at the time of sale, the estimated total payments and
allowances associated with each transaction. Additionally, the Company offers programs directly to consumers to
promote the sale of its products. Promotions which reduce the ultimate consumer sale prices are recorded as a
reduction of net sales at the time the promotional offer is made, generally using estimated redemption and
participation levels. Taxes we collect on behalf of governmental authorities, which are generally included in the price
to the customer, are also recorded as a reduction of net sales.
The Company continually assesses the adequacy of accruals for customer and consumer promotional program costs
not yet paid. To the extent total program payments differ from estimates, adjustments may be necessary. Historically,
these adjustments have not been material to annual results.
• Pension Plans and Other Postretirement Benefits The determination of the Company’s obligation and expense for
pension and other postretirement benefits is dependent on certain assumptions developed by the Company and used by
actuaries in calculating such amounts. Assumptions include, among others, the discount rate, future salary increases
and the expected long-term rate of return on plan assets. Actual results that differ from assumptions made are
recognized on the balance sheet and subsequently amortized to earnings over future periods. Significant differences in
actual experience or significant changes in macroeconomic conditions resulting in changes to assumptions may
materially affect pension and other postretirement obligations. This has been evident in recent periods, as market
discount rates utilized to determine the actuarial valuation of plan liabilities have moved significantly lower. This has
resulted in higher actuarial pension liabilities and contributed to higher net periodic pension costs. We expect this
trend to continue in fiscal 2012 based on market rates at October 1, 2011, which is the valuation date for the
Company's pension plans. In determining the discount rate, the Company generally uses the yield on high-quality
bonds that coincide with the cash flows of its plans’ estimated payouts. For the U.S. plans, which represent the
Company’s most significant obligations, we consider the Mercer yield curves in determining the discount rates.
Of the assumptions listed above, changes in the expected long-term rate of return on plan assets and changes in the
discount rate used in developing plan obligations will likely have the most significant impact on the Company’s
annual earnings prospectively. Based on plan assets at September 30, 2011, a one percentage point decrease or
increase in actual asset returns would decrease or increase the Company’s pre-tax pension expense by approximately
$8. In addition, it may increase and accelerate the rate of required pension contributions in the future. Uncertainty
related to economic markets and the availability of credit may produce changes in the yields on corporate bonds rated
as high-quality. As a result, discount rates based on high-quality corporate bonds may increase or decrease leading to
lower or higher, respectively, pension obligations. A one percentage point decrease in the discount rate would increase
obligations by approximately $110.7 at September 30, 2011.
As allowed under GAAP, the Company’s U.S. qualified pension plan uses Market Related Value, which recognizes
market appreciation or depreciation in the portfolio over five years so it reduces the short-term impact of market
fluctuations.
• Valuation of Long-Lived Assets The Company periodically evaluates its long-lived assets, including goodwill and
43