Changes in indefinite-lived intangible assets are currency related. Estimated amortization expense for amortized intangible assets for each year ended September 30, 2004 through 2008 is $5.0.
Energizer has several defined benefit pension plans covering substantially all of its employees in the United States and certain employees in other countries. The plans provide retirement benefits based on years of service and earnings. Energizer also sponsors or participates in a number of other non-U.S. pension arrangements, including various retirement and termination benefit plans, some of which are required by local law or coordinated with government-sponsored plans, which are not significant in the aggregate and therefore are not included in the information presented below. Health care and life insurance postretirement benefits are also currently provided by Energizer for certain groups of retired employees.
For the six months ended March 31, 2004, $4.8 in pension contributions and $1.3 in postretirement contributions have been made by Energizer. Energizer expects to contribute $8.6 to its pension plans and $2.8 to its other postretirement plans for the fiscal year 2004.
Note 12– On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in the U.S. The act introduces a prescription drug benefit under Medicare, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide retiree benefits in certain circumstances. It is not yet clear what impact, if any, the new legislation will have on Energizer's postretirement health care plans. The accumulated postretirement benefit obligation (APBO) reflected in the other liabilities section of the accompanying consolidated balance sheet, and the net periodic postretirement benefit cost (NPPBC) reflected in the accompanying consolidated statement of earnings do not reflect the effects, if any, of the Act. Specific authoritative guidance from the Financial Accounting Standards B oard on the proper accounting for any such effect is pending and may require in the future that Energizer change APBO and NPPBC amounts disclosed.
Note 13– Energizer was served with a lawsuit filed on August 12, 2003 in the U.S. District Court for the District of Massachusetts in Boston, Massachusetts by the Gillette Company. The lawsuit alleges that Energizer’s new QUATTRO men’s shaving system infringes one of Gillette’s patents with respect to a specific progressive geometric blade configuration, and petitions the court for injunctive relief as well as monetary damages. The Gillette Company filed a motion for a preliminary injunction in the matter, which was denied by the Court in an order issued January 15, 2004. The Gillette Company has appealed this decision to the U.S. Court of Appeals for the Federal Circuit. In December, 2003, the Gillette Company amended its original complaint to add allegations thatQUATTRO infringes three additional Gillette patents involving the system’s tray and handle grips, and on December 19, 2003, filed suit against Energizer’s subsidiary in Germany alleging thatQUATTRO infringes Gillette’s European patent which is equivalent to the three-blade progressive geometry patent at issue in the Massachusetts District Court. Energizer separately challenged the validity of Gillette’s European progressive geometry patent in a European Patent Office action, but, at a hearing held in March, 2004, its challenge was denied; consequently, Gillette’s lawsuit against Energizer’s subsidiary will proceed to trial in December of 2004. Energizer believes that it has meritorious defenses to Gillette’s allegations in both the U.S. and European actions.
On February 13, 2004, Energizer filed a patent infringement suit against Gillette in federal district court in Connecticut. The complaint alleges that Gillette is infringing three Schick patents concerning the connection of the blade cartridge to the razor handle. These three patents cover Gillette’s Mach3, Mach3 Turbo and Venus product lines. This suit is in a preliminary stage and may proceed for a protracted period of time.
On February 10, 2004, the plaintiff in a proposed class action lawsuit, filed in May, 2003 in the Circuit Court for the 20th Judicial Circuit in St. Clair County, Illinois, voluntarily dismissed her action against Energizer and its wholly owned subsidiary, Eveready Battery Company, Inc.
Note 14– Supplemental financial statement information is shown below:
| | | March 31, | September 30, | March 31, |
| | | 2004 | 2003 | 2003 |
| | |
|
|
|
Inventories | | | | |
| Raw materials and supplies | | $ 60.7 | | $ 56.5 | | $ 59.5 | |
| Work in process | | 113.8 | | 116.3 | | 138.4 | |
| Finished products | | 274.8 | | 257.8 | | 322.7 | |
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| |
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| |
| Total inventories | | $ | 449.3 | | $ | 430.6 | | $ | 520.6 | |
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Other current assets | | | | | | | | | | |
| Investment in SPE | | $ | 69.5 | | $ | 100.7 | | $ | 88.8 | |
| Miscellaneous receivables | | | 26.3 | | | 56.9 | | | 27.9 | |
| Deferred income tax benefits | | | 60.3 | | | 60.4 | | | 59.8 | |
| Other | | | 125.5 | | | 90.5 | | | 72.4 | |
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| Total other current assets | | $ | 281.6 | | $ | 308.5 | | $ | 248.9 | |
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Other assets | | | | | | | | | | |
| Pension asset | | $ | 122.5 | | $ | 117.3 | | $ | 114.0 | |
| Deferred charges and other assets | | | 37.5 | | | 31.5 | | | 28.5 | |
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| Total other assets | | $ | 160.0 | | $ | 148.8 | | $ | 142.5 | |
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Other current liabilities | | | | | | | | | | |
| Accrued advertising, promotion and allowances | | $ | 251.3 | | $ | 230.8 | | $ | 190.4 | |
| Accrued salaries, vacations and incentive compensation | | | 56.4 | | | 73.7 | | | 76.8 | |
| Other | | | 130.0 | | | 123.7 | | | 115.6 | |
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| Total other current liabilities | | $ | 437.7 | | $ | 428.2 | | $ | 382.8 | |
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Other non-current liabilities | | | | | | | | | | |
| Pension, other retirement benefits and deferred compensation | | $ | 265.1 | | $ | 224.7 | | $ | 191.1 | |
| Other non-current liabilities | | | 39.6 | | | 58.3 | | | 77.3 | |
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| Total other non-current liabilities | | $ | 304.7 | | $ | 283.0 | | $ | 268.4 | |
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Note 15– Energizer purchased approximately 3.9 million shares of its common stock during the six months ended March 31, 2004, of which 0.5 million was purchased in the second quarter, under its September 2003 authorization from the Board of Directors. On January 26, 2004, the Board of Directors replaced its last authorization with a new authorization to purchase up to ten million shares of Energizer common stock, with no expiration date. Future purchases may be made from time to time on the open market or through privately negotiated transactions, subject to corporate objectives and the discretion of management.
Items 2 and 3.Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk(Dollars in millions, except per share data)
Highlights / Operating Results
The following discussion is based on the historical results of Energizer Holdings, Inc. (Energizer), unless otherwise noted. On March 28, 2003, Energizer completed its acquisition of the worldwide Schick-Wilkinson Sword (SWS) business from Pfizer, Inc. and thus, results for the SWS business are not included in the Consolidated Statement of Earnings prior to this date.
For the quarter ended March 31, 2004, net earnings were $53.4 or $0.65 per basic share and $0.63 per diluted share compared to $33.0, or $0.38 per basic share and $0.37 per diluted share for the same quarter last year. Current quarter earnings include tax benefits related to prior year losses of $9.5, or $0.11 per share and intellectual property rights income of $0.9 after taxes, or $0.01 per share.
Net earnings for the six months ended March 31, 2004 were $168.4 or $2.03 per basic share and $1.97 per diluted share compared to $119.4, or $1.36 per basic share and $1.33 per diluted share for the same period last year. Current year earnings include tax benefits related to prior year losses of $16.2, or $0.19 per share and intellectual property rights income of $0.9 after taxes, or $0.01 per share. Included in the net earnings for the six months ended March 31, 2003 is intellectual property rights income of $3.7 after taxes or $0.04 per share.
The inclusion of SWS results, net of incremental interest and integration expense, increased second quarter and six month diluted earnings per share by $0.12 and $0.28, respectively, of which $0.04 and $0.07, respectively, related to favorable foreign currency translation. Additionally, the second quarter and six months earnings per share included $0.07 and $0.20 of favorable currency impact related to the battery business.
Net sales increased $230.3 and $469.6 for the quarter and six month period, respectively. The SWS acquisition contributed $214.9 and $417.9 in net sales for the quarter and six month period, respectively, and the battery segments’ sales increased $15.4 and $51.7 for the same periods, respectively. See the comments on sales by segment in the Segment Results section below.
Gross margin increased $148.1 for the quarter and $292.6 for the six months, primarily due to the SWS acquisition. Gross margin percentage increased 8.4 percentage points to 51.2% for the current quarter and 5.8 percentage points to 50.7% for the current six months, primarily due to a higher margin rate for razors and blades than in the battery segments and favorable impact of currencies.
Selling, general and administrative expense increased $57.9 in the quarter and $111.7 in the six months, mainly due to the inclusion of SWS operations, as well as costs to integrate SWS operations, and higher corporate expenses. Selling, general and administrative expense as a percent of sales were 21.5% and 18.3% in the current quarter and six months, respectively, compared to 19.1% and 15.5% in the same quarter and six month period last year, respectively, primarily due to a higher rate of spending in razors and blades than in the battery segments.
Advertising and promotion expense increased $62.0 and $107.5 in the current quarter and six months, primarily as a result of the acquisition of SWS. Advertising and promotion as a percent of sales was 15.0% and 12.9% in the current quarter and six months, respectively, compared to 7.4% and 7.9% in the same quarter and six months last year, respectively. The increased percentage is primarily due to a generally higher rate of spending in razors and blades than in the battery segments, combined with significant incremental spending on the new shaving products,QUATTRO andIntuition.
For the current quarter and six months, research and development expense increased $11.4 and $18.7 as a result of the acquisition of SWS and higher battery expense related to a charge for a discontinued development project. Research and development as a percent of sales was 3.5% and 2.6% in the current quarter and six months, respectively, compared to 2.6% and 1.9% in the same quarter and six months last year, respectively. The increased percentage is due to a higher rate of spending in razors and blades than for batteries, as well as the aforementioned battery charge.
Segment Results
Energizer’s operations are managed via three major segments - North America Battery (United States and Canada battery and lighting products), International Battery (rest of world battery and lighting products) and Razors and Blades (global razors, blades, and related products). Energizer reports segment results reflecting all profit derived from each outside customer sale in the region in which the customer is located. Research and development costs for the battery segments are combined and included in the Total Battery segment results. Research and development costs for Razors and Blades are included in that segment’s results. Segment performance is evaluated based on segment operating profit, exclusive of general corporate expenses, major restructuring charges and amortization of intangible assets. Financial items, such as interest income and expense, are man aged on a global basis at the corporate level.
This structure is the basis for Energizer’s reportable operating segment information, as included in the tables in Note 3 to the Condensed Financial Statements for the quarters and six months ended March 31, 2004 and 2003. All prior periods have been restated to conform to the current segment presentation.
North America Battery
| | Quarter ended March 31, | Six months ended March 31, |
| | 2004 | 2003 | 2004 | 2003 |
|
| Net sales | $ 187.5 | $ 194.2 | $ 557.4 | $ 541.7 |
| Segment profit | $ 39.0 | $ 45.6 | $ 154.0 | $ 155.8 |
| | | | |
Net sales to customers for the second quarter decreased $6.7, or 3%, due to lower volumes of large cell size alkaline batteries and lighting products, partially offset by higher volume in all other products. Large cell size alkaline volume declined 34% and lights declined 26% as sales returned to normal levels compared to significant increases last year prompted by terrorism and security concerns.
In the U.S., retail alkaline category units declined an estimated 5% compared to the same quarter last year, while category value fell 9%. Retail consumption of Energizer’s alkaline products decreased an estimated 7% in units and 9% in value for the quarter. Energizer estimates its share of the alkaline battery market at approximately 31% for the quarter, essentially flat compared to the same quarter last year. Energizer estimates that overall retail inventory levels at March 31, 2004, are at, or slightly above, seasonal normal levels.
Gross margin for the quarter declined $2.5, or 3%, on lower sales. Segment profit decreased $6.6 on lower margin, and higher advertising, promotion and overhead expenses.
For the six months, sales increased $15.7, or 3%, on favorable currency translation of $6.2, higher volume and favorable pricing and product mix. Gross margin for the six months increased $5.5, or 2%, due to higher sales, partially offset by higher product costs. Segment profit decreased $1.8, as higher product costs, overheads and advertising and promotion expenses were nearly offset by margin on higher sales and favorable currency of $3.5.
International Battery
| | Quarter ended March 31, | Six months ended March 31, |
| | 2004 | 2003 | 2004 | 2003 |
|
| Net sales | $ 190.5 | $ 168.4 | $ 429.3 | $ 393.3 |
| Segment profit | $ 34.3 | $ 23.4 | $ 83.2 | $ 62.9 |
| | | | |
Net sales for the quarter increased $22.1, or 13%, on favorable currency impacts of $15.6 and higher volumes in the Asia Pacific region. Segment profit improved $10.9 for the quarter, including a $7.9 benefit from currency valuations and higher volumes, which were partially offset by higher overhead expenses.
For the six months, net sales increased $36.0, or 9%, on favorable currency impacts of $35.9 and favorable volume in Asia Pacific, partially offset by lower volumes and unfavorable pricing in Europe. Segment profit increased $20.3 for the six months, with a $19.1 favorable impact from currencies and improved volumes, which were partially offset by unfavorable pricing and higher overhead expenses.
Currency rates have been a significant favorable factor in the segment's results for the first six months of 2004 compared to 2003, with average year over year major European currencies up 10-18%, Australian dollar up 12% and other key currencies generally up versus the US dollar. Currently, major European currencies are up 2-11%, Australian dollar is up 12% compared to the average rates in the last six months of fiscal 2003, with other currencies demonstrating similar trends. Therefore, at current rates, we expect currency to continue to be favorable to the year over year comparison in the last half of fiscal 2004, but at a much lower level than earlier in the year.
Razors and Blades
| | Quarter ended March 31, | Six months ended March 31, |
| | 2004 | 2003 pro forma | 2004 | 2003 pro forma |
|
| Net sales | $ 214.9 | $ 128.0 | $ 417.9 | $ 312.0 |
| Segment profit | $ 30.0 | ($ 12.3) | $ 64.4 | $ 16.8 |
| | | | |
Energizer’s acquisition of SWS was completed on March 28, 2003; therefore, the comparison of the current quarter and six months are versus pro forma SWS results for the corresponding periods last year, as shown in Note 4 of the Condensed Financial Statements.
Razors and Blades sales for the quarter were $214.9, an increase of $86.9, or 68%, compared to the same quarter last year. The sales growth was primarily attributable to the new men’s and women’s shaving systems,QUATTRO andIntuition, and favorable currency of $17.3, partially offset by anticipated declines in other SWS product lines, which were negatively impacted by new product sales. New product sales for the quarter reflect continued strong sales in previously launched markets, as well as new brand rollouts in Japan and key European markets. Last year’s second quarter sales were weak in advance of theIntuition launch in the United States, as retailers held down inventory levels of other SWS products.
Segment profit for the quarter was $30.0, a $42.3 improvement compared to a $12.3 operating loss in a weak second quarter of 2003. This increase was due to higher gross margin from new product sales, lower product costs, cost savings from integration synergies and favorable currency impacts of $5.7, partially offset by higher advertising, promotion and overhead expenses. The quarterly comparison also benefited from the absence of $12.0 of expenses for manufacturing startup and other costs associated with the launch ofIntuition, which were included in last year’s second quarter.
For the six months, sales increased $105.9, or 34%, as new product sales and $32.8 of favorable currency were partially offset by anticipated declines in other SWS product lines. Segment profit for the six months increased $47.6 to $64.4 as higher gross margin from new product sales, lower product costs and favorable currency impacts of $10.1 were partially offset by higher advertising, promotion and overhead expenses.
Looking forward, SWS’ year-over-year comparisons will be more difficult as we near the anniversary of new product launches, which included significant retail pipeline fill sales. In addition, significant advertising and promotion is planned for the third fiscal quarter in support of the new products and in response to continuing competitive activity.
General Corporate and Other Expenses
Corporate and other expenses increased $12.4 for the quarter and $22.0 for the six months due to costs of integrating the SWS business, higher legal expenses related to litigation activity and higher administrative expenses.
Intellectual Property Rights Income
The current quarter and six months include $1.5 pre-tax or $0.9 after-tax, related to the licensing of intellectual property rights. In the six months ended March 31, 2003, Energizer recorded income related to intellectual property rights of $6.0 pre-tax, or $3.7 after-tax.
Interest Expense and Other Financing Costs
Interest expense increased $2.0 for the quarter and $4.8 for the six months due to SWS acquisition debt, partially offset by lower interest rates.
Other net financing income was favorable $0.9 for the quarter and $2.5 for the six months primarily due to foreign currency gains in the current periods.
Income Taxes
Income taxes were 15.4% for the quarter and 26.4% for the six months, which includes previously unrecognized tax benefits on prior year losses of $9.5 for the quarter and $16.2 for the six months. Absent these items, the income tax rate for the quarter was 30.4% compared to 28.1% in the same quarter last year and for the six months was 33.5% compared to 34.0% for the same period last year. The second quarter rates for both years reflect an adjustment necessary to bring the rate for the six months in line with the projected rate for the full year.
Energizer has recognized significant tax benefits related to prior year losses over the last four quarters, including $7.8, or $0.09 per diluted share in the third quarter of 2003. These benefits have been recognized in periods where the improved operating results in key foreign markets have made it more likely than not that tax loss carryforwards will be realized in the foreseeable future. Looking forward, Energizer has now recognized the bulk of such benefits available and does not expect to record meaningful additional amounts in the foreseeable future. As a result, year over year tax comparisons are expected to be unfavorable in the last half of the year.
Financial Condition
At March 31, 2004, working capital was $542.2, compared to $515.6 at September 30, 2003. At March 31, 2003, current liabilities exceeded current assets by $135.8 primarily as a result of the increase in short-term borrowing related to the acquisition of SWS. Additionally, accounts receivable increased $111.3 from March 31, 2003 to March 31, 2004 reflecting higher sales. Inventories declined $71.3 over the same period reflecting replacement of high acquisition cost SWS inventory with lower cost inventory manufactured after the acquisition, as well as a reduction in high prior year inventory levels to support the April 2003Intuition launch.
Energizer’s total borrowings were $954.6 at March 31, 2004. As of March 31, 2004, Energizer’s total debt and financing instruments tied to variable interest rates (primarily LIBOR) were $629.6. An increase in the applicable short-term rates of one full percentage point would increase annualized financing costs by $6.3.
A summary of Energizer’s significant contractual obligations is shown below. See Note 9 to the Condensed Financial Statements for discussion of letters of credit, loan guarantees and guarantees for the purchase of goods used in production.
| | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
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| Long-term debt, including current maturities | | $ 885.9 | | $ 20.0 | | $ 120.9 | | $ 155.0 | | $ 590.0 |
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| Notes payable | | 68.7 | | 68.7 | | - | | - | | - |
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| Operating leases | | 90.7 | | 13.2 | | 20.7 | | 14.3 | | 42.5 |
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| Total | | $ 1,045.3 | | $ 101.9 | | $ 141.6 | | $ 169.3 | | $ 632.5 |
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Cash flow from operations was $249.7 for the six months ended March 31, 2004, compared to $245.6 for the same period a year ago. Current year cash flows benefited from significantly higher cash earnings, primarily from the SWS acquisition. Prior year cash flows benefited from conversion of trade receivables and inventory to cash. Due to business seasonality, Energizer's cash flow from operations for the first six months of each fiscal year is typically significantly higher than for the last six months.
Cash used in investing activities includes capital expenditures of $53.6 in the current six month period compared to capital expenditures of $14.1 in the same period last year, with the increase primarily due to higher battery production capital spending and the acquisition of SWS. Prior year investing cash flows included the acquisition of SWS.
Cash flow from financing activities includes the purchase of $145.8 of treasury stock in the current six months compared to $128.9 in the same period last year. Energizer purchased approximately 3.9 million shares of its common stock during the current six months ended March 31, 2004, of which 0.5 million was purchased in the second quarter, under its September 2003 authorization from the Board of Directors.Subsequent to March 31, 2004 and through May 6, 2004, Energizer purchased an additional 0.4 million shares of its common stock. On January 26, 2004, the Board of Directors replaced its last authorization with a new authorization to purchase up to ten million shares of Energizer common stock. Future purchases may be made from time to time on the open market or through privately negotiated transactions, subject to corporat e objectives and the discretion of management.
Under the terms of Energizer’s debt facilities, the ratio of Energizer’s total indebtedness to its Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (as defined by the facility agreement) cannot be greater than 3.5 to 1, and the ratio of its current year EBIT to total interest expense must exceed 3.5 to 1. Energizer’s ratio of total indebtedness to its EBITDA was 1.9 to 1, and the ratio of its EBIT to total interest expense was 12.0 to 1 as of March 31, 2004.
Energizer believes that cash flows from operating activities and periodic borrowings under available credit facilities will be adequate to meet short-term and long-term liquidity requirements prior to the maturity of Energizer’s credit facilities, and that it will be able to maintain all of its borrowing covenants, including the debt to EBITDA ratio, although no guarantee can be given in this regard.
Energizer generates accounts receivable from its customers through the ordinary course of business. A pool of domestic trade accounts receivable are routinely sold to Energizer Receivables Funding Corporation (the SPE), which is a wholly owned, bankruptcy-remote special purpose entity subsidiary of Energizer. The SPE’s only business activities relate to acquiring and selling interests in Energizer’s receivables, and it is used as an additional source of liquidity. The SPE sells an undivided percentage ownership interest in each individual receivable to an unrelated party (the Conduit) and uses the cash collected on these receivables to purchase additional receivables from Energizer.
Until March 2004, the trade receivables sale facility represented “off-balance sheet financing,” since the Conduit’s ownership interest in the SPE’s accounts receivable results in assets being removed from our balance sheet, rather than resulting in a liability to the Conduit. Upon the facility’s termination, the Conduit would be entitled to all cash collections on the SPE’s accounts receivable until its purchased interest has been repaid.
The terms of the agreements governing this facility qualify trade receivables sale transactions for “sale treatment” under generally accepted accounting principles. As such, Energizer is required to account for the SPE’s transactions with the Conduit as a sale of accounts receivable instead of reflecting the Conduit’s net investment as debt with a pledge of accounts receivable as collateral. Absent this “sale treatment,” Energizer’s balance sheet would reflect additional accounts receivable and notes payable and lower other current assets. See further discussion in Note 8 to the Condensed Consolidated Financial Statements.
In April 2004, Energizer renewed its contract with the Conduit of the SPE, with some key changes. Under the new agreement, the SPE no longer meets the “sale treatment” under generally accepted accounting principles as noted above. Therefore, future transactions will be reported and consolidated into Energizer’s results. As outlined above, the changes to Energizer’s balance sheet will consist of additional accounts receivable, lower other current assets resulting from the elimination of the investment in the SPE, and if applicable, an increase in notes payable. This accounting change will occur in Energizer’s third fiscal quarter.
Forward-Looking Statements
Statements made in this document that are not historical, particularly statements regarding estimates of battery category decline, retailer consumption of Energizer’s products, Energizer’s market share in the battery category, retailer inventory levels for the battery category, anticipated SWS advertising and promotion expenses, anticipated currency impact on future earnings,expectations of future tax benefits related to prior year losses and year-over-year tax comparisons, and Energizer’s compliance with debt covenants, including the covenant with respect to its debt to EBITDA ratio, and its continuing ability to meet liquidity requirements, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Energizer cautions readers not to place undue rel iance on any forward-looking statements, which speak only as of the date made.
Energizer advises readers that various risks and uncertainties could affect its financial performance and could cause Energizer’s actual results for future periods to differ materially from those anticipated or projected. Energizer’s estimates of battery category growth and value increase, retail consumption of its battery products on a unit and volume basis, Energizer market share and retailer inventory levels may be inaccurate, or may not reflect significant segments of the retail market. Moreover, Energizer sales volumes in future quarters may lag unit consumption if retailers are currently carrying excess inventories at this time, or if those retailers elect to further contract their inventory levels. Energizer’s overall tax rate for the year may be higher or lower than anticipated because of unforeseen changes in foreign loss estimates. Such changes c ould also impact Energizer’s continued recognition of tax benefits related to prior year losses. Anticipated advertising and promotion expenses for SWS may be impacted by actions of our competitors, available cash lfows and other investment alternatives. Competitive activity, whether involving pricing, new products and/or promotional expenditures, could negatively impact sales growth of the new SWS shaving systems, as well as future quarter segment results. Furthermore, the impact of the new shaving systems on existing product sales is difficult to determine with any accuracy, but it is likely that existing product sales of similar category products will decline with the growing acceptance of new products. Energizer’s debt to EBITDA ratio could increase beyond acceptable levels if EBITDA earnings levels decrease or if cash flow needs are greater than anticipated, resulting in a breach of the ratio covenant and consequent default on its existing debt facilities. Unforeseen fluctuations in levels of Energizer’s operating cash flows, or inability to maintain compliance with its debt covenants could also limit Energizer’s ability to meet future operating expenses and liquidity requirements, fund capital expenditures, or service its debt as it becomes due. Finally, the impact of currency exchanges is difficult to predict and can be significantly affected by economic and political conditions, either worldwide or in particular countries or regions, and by governmental monetary policies. Additional risks and uncertainties include those detailed from time to time in Energizer’s publicly filed documents, including Energizer’s Registration Statement on Form 10, its annual report on Form 10-K for the Year ended September 30, 2003, and its Current Reports on Form 8-K dated April 25, 2000 and April 28, 2004.
