Energizer 2004 Annual Report Download - page 28

ENR 2004 Annual Report
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1. Basis of Presentation
Preparation of the financial statements in conformity with generally
accepted accounting principles in the United States (GAAP) requires
Energizer Holdings, Inc. (the Company) to make estimates and assump-
tions 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, bad debts, inventories, 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
The Company’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 trans-
lation adjustments are reported as a component within accumulated
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
practices 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
losses from foreign currency transactions are generally included in earnings.
Financial Instruments and Derivative Securities The Company 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.
The Company has not designated any financial instruments as hedges
for accounting purposes in the three years ended September 30, 2004.
Cash Equivalents For purposes of the Consolidated Statement of Cash
Flows, cash equivalents are all considered to be highly liquid investments
with a maturity of three months or less when purchased.
Accounts Receivable Valuation Accounts receivable are stated at their
net realizable value. The allowance for doubtful accounts reflects the
Company’s best estimate of probable losses inherent in the receivables
portfolio determined on the basis of historical experience, specific
allowances for known troubled accounts and other currently available
information. Bad debt expense is included in selling, general and admin-
istrative expense in the Consolidated Statement of Earnings.
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 otherwise 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
$110.0, $80.5 and $57.4 in 2004, 2003 and 2002, respectively.
Goodwill and Other Intangible Assets Goodwill and indefinite-lived
intangibles are not amortized, but are evaluated annually for impairment
as part of the Company’s annual business planning cycle in the fourth
quarter. The fair value of each reporting unit is estimated using the
ENERGI ZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)