Rayovac 2004 Annual Report Download - page 45

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Revenue Recognition and Concentration of Credit Risk
We recognize revenue from product sales upon shipment to the customer, which is the point at which all
risks and rewards of ownership of the product are passed, provided that: there are no uncertainties regarding
customer acceptance; persuasive evidence of an arrangement exists; the price to the buyer is fixed or
determinable; and collectibility is deemed reasonably assured. We are generally not obligated to allow for, and
our general policy is not to accept, product returns for battery sales. We do accept returns related to our shaving,
grooming and personal care products. We estimate and accrue the cost of these returns based on historical
experience, which are treated as a reduction of net sales.
We enter into various promotional arrangements, primarily with retail customers, including arrangements
entitling such retailers to cash rebates from us based on the level of their purchases, which require us to estimate
and accrue the estimated costs of the promotional programs. These costs are generally treated as a reduction of
net sales.
We also enter into promotional arrangements targeted to the consumer. Such arrangements are treated as
either a reduction of net sales or an increase in cost of sales, based on the type of promotional program. The
income statement characterization of our promotional arrangements complies with EITF 01-09, Accounting for
Consideration Given by a Vendor to a Customer (Including A Reseller of the Vendor’s Products).
Cash consideration, or an equivalent thereto, given to a customer is generally classified as a reduction of net
sales. If we provide a customer anything other than cash, the cost of the consideration is classified as an expense
and included in cost of sales.
For all types of promotional arrangements and programs, we monitor our commitments and use statistical
measures and past experience to determine the amounts to be recorded for the estimate of the earned, but unpaid,
promotional costs. The terms of our customer-related promotional arrangements and programs are individualized
to each customer and are generally documented through written contracts, correspondence or other
communications with the individual customers.
We also enter into various contractual arrangements, primarily with retail customers, which require us to
make an upfront cash, or “slotting” payment, to secure the right to distribute through such customer. We
capitalize slotting payments, provided the payments are supported by a time or volume based contractual
arrangement with the retailer, and will amortize the associated payment over the appropriate time or volume
based term of the contractual arrangement. The amortization of the slotting payment is treated as a reduction in
net sales and the corresponding asset is included in “Deferred charges and other” in our Consolidated Balance
Sheets.
Our trade receivables subject us to credit risk which is evaluated based on changing economic, political, and
specific customer conditions. We assess these risks and make provisions for collectibility based on our best
estimate of the risks presented and information available at the date of the financial statements. The use of
different assumptions may change the estimate of collectibility. We extend credit to our customers based upon an
evaluation of the customer’s financial condition and credit history and generally do not require collateral. Our
credit terms generally range between 30 and 90 days from invoice date, depending upon the evaluation of the
customer’s financial condition and history. We monitor our customers’ credit and financial conditions based on
changing economic conditions and adjust our credit policies with respect to any individual customer as we
determine appropriate. These adjustments may include, but are not limited to, restricting shipments to customers,
reducing credit limits, shortening credit terms, requiring cash payments in advance of shipment, or securing
credit insurance.
See Notes (2b), (2c), and (2e) to the Consolidated Financial Statements for more information about our
revenue recognition and credit policies.
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