Energizer 2005 Annual Report Download - page 30

FASB Staff Position 109-1 (FSP 109-1), “Application of FASB
Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the
American Jobs Creation Act of 2004,” requires companies eligible
for a tax deduction resulting from “qualified production activities
income” to treat this as a reduction to the income tax provision as
realized. This deduction will not impact the Company until fiscal
2006. This deduction, combined with the phase-out of the export
incentive, is not expected to have a material impact on the
Consolidated Financial Statements of the Company.
The FASB issued SFAS 154, “Accounting Changes and Error
Corrections – a replacement of APB Opinion No. 20 and FASB
Statement No. 3” (SFAS 154), which requires retrospective applica-
tion to prior periods’ financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-
specific effects or the cumulative effect of the change. It also
requires that a change in depreciation, amortization or depletion
method for long-lived, nonfinancial assets be accounted for as a
change in accounting estimate effected by a change in accounting
principle. The Company is not currently contemplating an accounting
change which would be impacted by SFAS 154.
3. Acquisition of SWS
On March 28, 2003, the Company acquired the worldwide Schick-
Wilkinson Sword (SWS) business from Pfizer, Inc. for $930 plus
acquisition costs and subject to adjustment based on acquired
working capital level. The final purchase price and acquisition costs
totaled $975.8. A $550.0 bridge loan, together with existing available
credit facilities and cash, wereused to fund the acquisition. In 2003,
the Company refinanced the bridge loan into longer term financing.
SWS is the second largest manufacturer and marketer of men’s
and women’s wet shave products in the world, and its products
were marketed in over 80 countries at the time of the acquisition.
Its primary markets are the U.S. and Canada, Japan and the larger
countries of WesternEurope.
At acquisition, the Company recorded SWS inventory acquired at fair
value, as required by GAAP. The fair value of finished goods acquired
is sales value, less costs to sell and a reasonable profit margin on
the selling activity. As such, the inventory is valued equivalent to
what a distributor would pay,rather than the historical cost basis
of a manufacturer of such inventory. This accounting resulted in an
allocation of purchase price to acquired inventory which was $89.7
higher than the historical manufactured cost of SWS (the SWS
inventory write-up). Inventory value and cost of products sold will
be based on the post-acquisition SWS production costs for all
product manufactured after the acquisition date. The entire $89.7
of the SWS inventorywrite-up was recognized in cost of products
sold in 2003, reducing net earnings by $58.3, after taxes.
The Consolidated Statement of Earnings includes results of SWS
operations for fiscal 2005, 2004 and the final six months of fiscal
2003. The following table represents the Company’s pro forma
consolidated results of operations as if the acquisition of SWS had
occurred at the beginning 2003. Such results have been prepared
by adjusting the historical Company results to include SWS results
of operations and incremental interest and other expenses related
to acquisition debt. The pro forma results do not include any cost
savings resulting from the combination of Energizer and SWS
operations. The pro forma results may not necessarily reflect the
consolidated operations that would have existed had the acquisition
been completed at the beginning of such periods nor are they
necessarily indicative of future results.
UNAUDITED PRO FORMA FOR THE YEAR ENDED SEPTEMBER 30, 2003
Net sales $ 2,544.5
Net earnings 167.9
Basic earnings per share 1.95
Diluted earnings per share 1.90
4. Intellectual Property Rights Income
The Company entered into agreements to license certain intellectual
property to other parties in separate transactions. Such agreements
do not require any future performance by the Company, thus all
committed consideration was recorded as income at the time each
agreement was executed. The Company recorded income related
to such agreements of $1.5 pre-tax, or $0.9 after-tax, and $8.5 pre-
tax, or $5.2 after-tax, in the years ended September 30, 2004 and
2003, respectively.
5. Fixed Asset Impairment
The Company recorded a pre-tax charge in 2004 for asset impairment
of $4.2 in research and development expense. The charge was to
write down to disposition value certain long-lived assets following
adecision to discontinue a project to develop alternative manufac-
turing methods. Additionally,the Company recorded a $1.9 pre-tax
asset impairment charge in 2004 in cost of products sold for impaired
assets used to produce products that have been discontinued. The
impaired long-lived assets had been carried in the North America
Battery segment.
6. Goodwill and Intangible Assets and Amortization
The Company has allocated goodwill and other intangible assets
to individual countries or areas for battery businesses. The battery
business intangible assets arecomprised of trademarks primarily
related to the Energizer brand. These intangible assets are deemed
indefinite-lived.
The Company allocated goodwill, indefinite-lived trademarks and
other intangible assets to the SWS business at acquisition. The
other intangible assets include trademarks, tradenames, technology,
patents and customer-related assets with lives ranging from five
to 15 years.
Goodwill and intangible assets deemed to have an indefinite life are
not amortized, but reviewed annually for impairment of value. The
28 ENR 2005 Annual Report
ENERGIZER HOLDINGS, INC.
Notes to Consolidated Financial Statements
(Dollars in millions, except per share and percentage data)