Energizer 2007 Annual Report Download - page 28

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Energizer Holdings, Inc. 2007 Annual Report
1. Basis of Presentation
Preparation of the financial statements in conformity with generally
accepted accounting principles in the U.S. (GAAP) requires
Energizer Holdings, Inc. and its subsidiaries (the Company) to
make estimates and assumptions 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 ongo-
ing basis, the Company evaluates its estimates, including those
related to customer programs and incentives, product returns, bad
debts, inventories, intangible and other long-lived assets, income
taxes, financing, pensions and other postretirement benefits, con-
tingencies 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 pre-
sented, except as indicated, are described below.
Principles of Consolidation The financial statements include the
accounts of the Company 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 liabili-
ties, and average exchange rates during the period for results of
operations. Related translation adjustments are reported as a com-
ponent within accumulated other comprehensive income in the
shareholders equity section of the Consolidated Balance Sheets.
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, accumu-
lated 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 for-
wards, purchased options and zero-cost option collars, are used
primarily to reduce transaction exposures and, to a lesser extent,
to manage other translation exposures. F/X instruments used are
selected based on their risk reduction attributes and the related
market conditions. The Company also holds a contract with an
embedded derivative instrument to mitigate the risk of its deferred
compensation liabilities, as discussed further in Note 13. The
Company has not designated these financial instruments as hedges
for accounting purposes in the three years ended
September 30, 2007.
The Company uses raw materials that are subject to price volatil-
ity. The Company uses hedging instruments as it desires to reduce
exposure to variability in cash flows associated with future pur-
chases of zinc or other commodities. For further discussion of such
instruments, see Note 13.
Cash Equivalents For purposes of the Consolidated Statements 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 expe-
rience, specific allowances for known troubled accounts and other
currently available information. Bad debt expense is included in
selling, general and administrative (SG&A) expense in the
Consolidated Statements 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. Expenditures related to capitalized software are included in
the capital expenditures caption in the Consolidated Statements
of Cash Flows.
Property, Plant and Equipment Property, plant and equipment
is stated at historical cost. Expenditures for new facilities and
expenditures that substantially increase the useful life of property,
including interest during construction, are capitalized and
reported in the capital expenditures caption in the Consolidated
Statements of Cash Flows. Maintenance, repairs and minor
renewals are expensed as incurred. When property is retired or
otherwise disposed of, the related cost and accumulated deprecia-
tion are removed from the accounts, and gains or losses on the
disposition are reflected in earnings. 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 $104.6, $109.1
and $111.0 in 2007, 2006 and 2005, 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 a discounted cash flow method. Intangible assets
with finite lives are amortized on a straight-line basis over expected
lives of five to 15 years. Such intangibles are also evaluated for
impairment annually.
Notes to Consolidated Financial Statements
(Dollars in millions, except per share and percentage data)