Energizer 2003 Annual Report Download - page 28

Page 26 ENR 2003 ANNUAL REPORT
1. BASIS OF PRESENTATION
Preparation of the financial statements in conformity with generally
accepted accounting principles in the United States (GAAP) requires
Energizer to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and lia-
bilities and the reported amounts of revenues and expenses. On an
ongoing basis, Energizer evaluates its estimates, including those related
to customer programs and incentives, product returns, bad debts, inven-
tories, intangible assets and other long-lived assets, income taxes,
financing operations, restructuring, pensions and other postretirement
benefits, contingencies and acquisitions. Actual results could differ from
those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Energizer’s significant accounting policies, which conform to GAAP and
are applied on a consistent basis among all years presented, except as
indicated, are described below.
Principles of Consolidation The financial statements include the
accounts of Energizer and its majority-owned subsidiaries. All significant
intercompany transactions are eliminated. Investments in affiliated
companies, 20% through 50% owned, are carried at equity.
Foreign Currency Translation Financial statements of foreign operations
where the local currency is the functional currency are translated using
end-of-period exchange rates for assets and liabilities, and average
exchange rates during the period for results of operations. Related
translation adjustments are reported as a component within accumulat-
ed other comprehensive income in the Shareholders Equity section of
the Consolidated Balance Sheet.
For foreign operations where the U.S. dollar is the functional currency
and for countries that are considered highly inflationary, translation prac-
tices differ in that inventories, properties, accumulated depreciation and
depreciation expense are translated at historical rates of exchange, and
related translation adjustments are included in earnings. Gains and loss-
es from foreign currency transactions are generally included in earnings.
Financial Instruments and Derivative Securities Energizer uses financial
instruments, from time to time, in the management of foreign currency,
interest rate and other risks that are inherent to its business operations.
Such instruments are not held or issued for trading purposes.
Foreign exchange (F/X) instruments, including currency forwards, pur-
chased options and zero-cost option collars, are used primarily to reduce
transaction exposures and, to a lesser extent, to manage other transla-
tion exposures. F/X instruments used are selected based on their risk
reduction attributes and the related market conditions. The terms of
such instruments are generally 12 months or less.
For derivatives not designated as hedging instruments for accounting
purposes, realized and unrealized gains or losses from such instruments
are recognized currently in selling, general and administrative expense
or other financing items, net in the Consolidated Statement of Earnings.
Energizer has not designated any financial instruments as hedges for
accounting purposes in the three years ended September 30, 2003.
Cash Equivalents For purposes of the Consolidated Statement of Cash
Flows, cash equivalents are considered to be all highly liquid invest-
ments with a maturity of three months or less when purchased.
Inventories Inventories are valued at the lower of cost or market, with
cost generally being determined using average cost or the first-in, first-
out (FIFO) method.
Capitalized Software Costs Capitalized software costs are included in
Other Assets. These costs are amortized using the straight-line method
over periods of related benefit ranging from three to seven years.
Property at Cost Expenditures for new facilities and expenditures that
substantially increase the useful life of property, including interest
during construction, are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred. When property is retired or other-
wise disposed of, the related cost and accumulated depreciation are
removed from the accounts, and gains or losses on the disposition are
reflected in earnings.
Depreciation Depreciation is generally provided on the straight-line basis
by charges to costs or expenses at rates based on estimated useful lives.
Estimated useful lives range from two to 25 years for machinery and
equipment and three to 30 years for buildings. Depreciation expense
was $80.5, $57.4 and $58.6 in 2003, 2002 and 2001, respectively.
Goodwill and Other Intangible Assets Prior to fiscal 2002, the cost of
goodwill and intangible assets was amortized on a straight-line basis,
with periods of 25 and 40 years for goodwill and seven to 40 years
for intangible assets and recorded in selling, general and administra-
tive expense. Beginning in fiscal 2002, goodwill and indefinite-lived
intangibles are no longer amortized, but evaluated annually for impair-
ment as part of Energizer’s annual business planning cycle. The fair
value of the reporting unit is estimated using the discounted cash flow
method. Intangible assets with finite lives are amortized on a straight-
line basis over expected lives of three to 15 years. Such intangibles
are also evaluated for impairment annually.
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)