Management’s Discussion and Analysis of Results of Operations and Financial Condition
(Dollars in millions except per share and percentage data)
The following discussion is a summary of the key factors management considers necessary in reviewing Energizer Holdings, Inc.'s (the Company) historical basis results of operations, operating segment results, and liquidity and capital resources. The Company includes the battery business (Energizer) and the razors and blades business (Schick-Wilkinson Sword, or SWS). This discussion should be read in conjunction with the Consolidated Financial Statements and related notes.
BATTERY BUSINESS OVERVIEW
Energizer is one of the world's largest manufacturers and marketers of batteries and flashlights, with a complete line of household batteries including alkaline, carbon zinc and lithium as well as specialty miniature, rechargeable and photo batteries. Its two primary brands areEnergizerandEveready, which are well known throughout the world.
There has been a continuing shift in consumer preference from carbon zinc batteries to higher-power, higher-priced alkaline and other more advanced batteries. Alkaline batteries are the predominant primary battery in most parts of the world except Asia and Africa. However, carbon zinc batteries continue to play a major role in less developed countries throughout the world and offer Energizer market position in those countries. Energizer uses its full portfolio of products to meet consumer needs.
Energizer operates 20 manufacturing and packaging facilities in 14 countries on four continents. Its products are marketed and sold in more than 150 countries primarily through a direct sales force, and also through distributors and wholesalers.
The battery category continues to be highly competitive as manufacturer and retailer brands compete for consumer acceptance and retail shelf space. Overall household battery consumption is increasing, but category value growth in the United States (U.S.) has lagged unit sales as consumer purchases have shifted to larger pack sizes and price-oriented brands have grown faster than premium products. Retail outlets experiencing the strongest battery category growth in the U. S. include mass merchandisers' super center format, home centers and dollar stores, while traditional outlets such as food, drug and hardware declined. Wal-Mart Stores, Inc. and its subsidiaries is Energizer’s largest customer. Energizer is well positioned to meet the needs of customer and consumer demands in these formats, leveraging category expertise, retail understanding and its p ortfolio of products to give Energizer a strong presence in each of the retail channels. Energizer estimates its share of the total U. S. retail alkaline market was approximately 31% in 2004 and 2003, and 32% in 2002.
Internationally, economic conditions and currency valuations relative to the U.S. dollar have improved in 2004 and in 2003, resulting in improved International Battery segment results. The strengthening of the euro and certain key currencies in the Asia Pacific region have been a significant benefit to Energizer in 2004 and 2003. A significant portion of Energizer’s product cost is more closely tied to the U.S. dollar than to the local currencies in which the product is sold. As such, currencies strengthening relative to the U.S. dollar improve margins as product costs in local currency terms decline. Conversely, weakening currencies relative to the U.S. dollar can be significantly unfavorable unless mitigated through pricing actions. Changes in the value of local currencies will continue to impact segment profitability in the future.
RAZORS AND BLADES BUSINESS OVERVIEW
On March 28, 2003, the Company acquired the worldwide SWS business from Pfizer, Inc. SWS is the second largest manufacturer and marketer of men’s and women’s wet shave products in the world. SWS operates five manufacturing facilities worldwide, and its products are marketed in over 100 countries. Its primary markets are the U.S., Canada, Japan and the larger countries of Western Europe. SWS estimates its overall share of the wet shave category for these major markets at approximately 22% in 2004 and 19% in 2003.
The Company views the wet shave products category as attractive within the consumer products industry due to the limited number of manufacturers, the high degree of consumer loyalty and the ability to improve pricing through innovation. While the category is extremely competitive for retail shelf space and product innovation, SWS has high-quality products and believes it has the opportunity to grow sales and margins in the future.
The SWS business is compatible with Energizer's business in terms of common customers, distribution channels and geographic presence, providing opportunities to leverage the Company’s marketing expertise, business organization and scale globally.
Beginning in 2003, SWS launched two major new products. TheIntuition women’s shaving system was launched in the U.S. in April 2003 and in other major world markets throughout 2004.QUATTRO was launched in the U.S. and parts of Europe in September 2003, and was rolled out to other markets later in 2004.Intuition Cucumber Melon was introduced in the spring of 2004 andQUATTRO Midnight in September 2004. TheQUATTRO andIntuition brands represent more than a quarter of a billion dollars of SWS global sales in 2004.
HIGHLIGHTS
Net earnings for the year ended September 30, 2004 were $267.4 compared to $169.9 in 2003 and $186.4 in 2002. Basic and diluted earnings per share in 2004 were $3.32 and $3.21, respectively, compared to $1.98 and $1.93 in 2003 and $2.05 and $2.01 in 2002.
Current year net earnings include the following items, stated on an after-tax basis: income tax benefits related to prior year losses and adjustments to prior year tax accruals of $24.7 and special termination pension benefits of $9.6. Fiscal 2003 net earnings included the following on an after-tax basis: expense associated with the write-up of inventory purchased in the SWS acquisition (SWS inventory write-up) of $58.3, a charge of early payment of long-term debt of $12.4, gain on the sale of property of $5.7, intellectual property rights income of $5.2 and tax benefits of $19.2 related to prior year losses and adjustments to prior year tax accruals. Fiscal 2002 net earnings included the following after-tax items: accounts receivable write-off associated with the bankruptcy of Kmart of $9.3, provisions for restructuring and related costs of $7.8, tax benefits related to prior year losses and adjustments to prior year tax accruals of $11.8 and a gain on the sale of property of $5.0.
OPERATING RESULTS
Net Sales
Net sales increased $580.2, or 26%, in 2004 compared to 2003 and increased $492.8, or 28%, in 2003 compared to 2002, primarily because the inclusion of SWS sales for a full year in 2004 and 6 months in 2003 following the midyear acquisition. Battery sales increased $145.1 in 2004 on higher volume and favorable currency translation impacts of $59.3. Battery sales increased $59.8 in 2003 compared to 2002 on favorable currency translation, and volume increases contributed $35.7 and $33.7, respectively, partially offset by unfavorable pricing and product mix.
Gross Margin
Gross margin dollars increased $450.4 in 2004 and $182.4 in 2003, primarily due to the SWS acquisition. Gross margin percentage was 50.1% of sales in 2004 compared to 42.9% in 2003, the latter percentage including a four percentage point reduction due to expense related to the SWS inventory write-up (see Note 3 to the Consolidated Financial Statements). Absent the SWS inventory write-up, gross margin for 2003 would have been 46.9% compared to 44.6% in 2002. The increase in gross margin percentage in both years is primarily due to the relatively higher margins of the SWS business versus the battery business. See Segment Results for a discussion of gross margin in each operating segment.
Selling, General and Administrative
Selling, general and administrative expense (SG&A) increased $159.3 in 2004 and $68.1 in 2003 primarily due to the SWS acquisition. Additionally, the 2004 increase reflects the impact of higher currency rates of $21.9, special termination benefits of $15.2 and higher battery overhead spending of $14.6. Selling, general and administrative expenses were 19.3%, 17.1% and 18.1% of sales in 2004, 2003 and 2002, respectively. The increased percentage in 2004 is primarily due to special termination benefits discussed above, higher legal expenses and integration associated with the SWS acquisition, and the inclusion of SWS for a full year, which has a higher SG&A percentage than the rate for the remainder of the Company.
Advertising and Promotion
Advertising and promotion (A&P) expense increased $152.3 in 2004 and $126.5 in 2003, compared to the year immediately preceding. The A&P expense change in 2004 and 2003 above would have decreased by $56.6 and $57.2, respectively, had SWS been included in 2003 and 2002. The remainder of the increases reflects significantly higher SWS spending, currency translation impacts, increases in the International Battery segment and, in 2004, an increase in North America Battery. A&P expense was 14.3%, 11.2% and 7.2% of sales for 2004, 2003 and 2002, respectively. Had SWS been included for the full year in 2003 and 2002, such percentages would have been 12.1% and 10.1% for 2003 and 2002, respectively. The increased percentages in 2004 and 2003 reflect the factors discussed above, as well as the increased proportion of razor and blade sales, which have a generally higher A&P percentage than the battery business.
Research and Development
Research and development expense was $74.0 in 2004, $51.5 in 2003 and $37.1 in 2002. The increase in 2004 and 2003 is primarily due to the SWS acquisition. Additionally, the 2004 increase includes a $4.2 asset impairment charge related to a discontinued technology development initiative. As a percent of sales, research and development expense was 2.6% in 2004, 2.3% in 2003 and 2.1% in 2002. Inclusion of SWS results for a full year in 2003 and 2002 would have resulted in research and development expense of 2.6% and 2.7%, respectively, of sales.
SEGMENT RESULTS
The Company's operations are managed via three major segments - North America Battery (the U.S. and Canada batteries and lighting products), International Battery (rest of world battery and lighting products) and Razors and Blades (global razors, blades and related products). The Company 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.
This structure is the basis for the Company’s reportable operating segment information presented in Note 22 to the Consolidated Financial Statements. The Company evaluates segment profitability based on operating profit before general corporate expenses, which include legal expenses, costs associated with most restructuring, integration or business realignment, amortization of intangibles and unusual items. Financial items, such as interest income and expense, are managed on a global basis at the corporate level.
North America Battery
| | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | | |
| Net sales | | $ | 1,117.6 | | $ | 1,041.9 | | $ | 1,021.2 | |
| Segment profit | | $ | 298.2 | | $ | 283.5 | | $ | 274.8 | |
For the year ended September 30, 2004, sales increased $75.7, or 7%, primarily due to higher volume and favorable Canadian currency translation of $7.7.The impact of four major hurricanes in 2004 contributed approximately $40 of sales compared to approximately $18 incremental sales volume in 2003 related to a major hurricane and the East Coast black out. Apart from event-driven volume and currency impact, sales volume grew approximately $46, or 4.5%, primarily against 2003 results which were dampened by reductions in retail inventory levels. Adjusting for events and retail inventory reductions last year, alkaline sales were relatively flat in 2004, while the remainder of Energizer's major product lines experienced double-digit growth. Overall pricing and product mix were slightly unfavorable for the year, as category pricing and promotional stability continued throughout the year, bu t minor unfavorable mix was experienced due to consumer demand shifting to larger pack sizes.
Segment profit increased $14.7, or 5%, with currency accounting for $4.3 of the improvement. Incremental gross margin from higher sales of $30.7 and currency impact was partially offset by higher SG&A, advertising and promotion, and product costs.
Net sales in 2003 increased $20.7, or 2%, versus 2002 on higher volume, much of which is attributable to previously mentioned hurricane and blackout, partially offset by unfavorable pricing and product mix. Small cell size alkaline volume decreased 5% for the year reflecting reductions in aggregate retail inventory, partially offset by consumption growth. Large alkaline cell size and lighting products volume increased 10% and 26%, respectively; these products are most affected by hurricanes, power outages and public safety concerns. Additionally, the remainder of Energizer’s major product lines experienced double-digit growth in 2003.
Pricing in 2003 was unfavorable as a result of steep promotional discounting early in the year and a midyear reduction in list prices on key products in response to competition. Promotional intensity in the category began to abate in the latter half of fiscal 2003, buffering the list price reduction. Additionally, Energizer experienced an unfavorable product mix in 2003 as the greatest sales growth was in the lowest margin products while the most profitable products experienced declines. As a result of these factors, gross margin for the year decreased $12.3, or 3%, in spite of the sales increase. Segment profit increased $8.7 in 2003, as the absence of a $15.0 write-off of Kmart pre-bankruptcy accounts receivable in 2002 and lower overhead spending were partially offset by lower gross margin.
International Battery
| | | 2004 | | 2003 | | 2002 | |
| | | | | | | | | | | |
| Net sales | | $ | 827.0 | | $ | 757.6 | | $ | 718.5 | |
| Segment profit | | $ | 147.7 | | $ | 122.4 | | $ | 101.3 | |
For the year ended September 30, 2004, net sales increased $69.4, or 9%, on favorable currency impacts of $51.6 and contributions of higher sales volume of $28.7, partially offset by unfavorable pricing and product mix, primarily in Europe. Segment profit increased $25.3 for the year, including a $26.6 favorable impact from currencies. Absent currencies, segment profit decreased $1.3 as a $6.1 gross margin contribution from higher sales was offset by higher selling, advertising and promotion, and general and administrative expenses.
International Battery net sales increased $39.1, or 5%, in 2003 on favorable currency translation of $31.0 as well as favorable pricing, primarily in South America, and higher alkaline sales volume, partially offset by lower carbon zinc volume. Retail alkaline sales volume increased 4% while carbon zinc volume decreased 5%. Segment profit increased $21.1, or 21%, with favorable currency accounting for $17.3 of the improvement. Absent currency impacts, segment profit increased $3.8, or 4%, reflecting favorable pricing and product mix, primarily in South America, and lower product cost. These favorable factors were partially offset by a 35% increase in advertising and promotion expense for the International Battery segment reflecting increased investments in our brand franchises as economic conditions improved in several key regions.
Razors and Blades
| | | 2004 | | 2003 Pro Forma | |
| | | | | | |
| Net sales | | $ | 868.1 | | $ | 745.0 | |
| Segment profit | | $ | 85.7 | | $ | 56.9 | |
The Company’s acquisition of SWS was completed on March 28, 2003; therefore, SWS is not included in the attached historical financial statements prior to this date. The comparison of September 30, 2004 amounts are versus pro forma SWS results for year ended September 30, 2003. The comparison of September 30, 2003 amounts are versus pro forma SWS results for the six months ended September 30, 2002. Segment profit excludes the SWS inventory write-up, which is discussed in further detail in Note 3 to the Consolidated Financial Statements.
For the year ended September 30, 2004, sales increased $123.1, or 17%, as incremental sales ofIntuition andQUATTRO and $52.4 of favorable currency were partially offset by anticipated declines in other product lines.QUATTRO andIntuition, combined contributed almost $275 of net sales in 2004, an increase of more than $150.
Segment profit for the year increased $28.8, or 51%, to $85.7, with currency impacts accounting for $15.7 of the improvement. Absent currencies, higher sales and lower product costs resulted in increased gross margin of $83.7, which was partially offset by significantly higher advertising and promotion expense, and to a lesser extent, higher selling expenses in support of the new brands.
| Six months ended September 30, | | 2003 | | 2002 Pro Forma | |
| | | | | | |
| Net sales | | $ | 433.0 | | $ | 322.2 | |
| Segment profit | | $ | 40.1 | | $ | 26.0 | |
For the six months ended September 30, 2003, Razors and Blades sales were $433.0, an increase of $110.8 compared to the same period last year, with nearly all of the increase from incremental sales of the newIntuitionandQUATTRO products, much of which represents retail pipeline fill. For existing products, favorable currency translation of $21.0 was nearly offset by declines in existing product sales in countries where new products were launched.
Segment profit for the six months ended September 30, 2003, was $40.1, an increase of $14.1 on higher sales and favorable currency impacts of $3.4, partially offset by significantly higher advertising, promotion, selling and marketing expense in support ofIntuition and, to a lesser extent,QUATTRO.
During the latter half of September 2003, SWS had significant pipeline fill forQUATTRO and relatively low advertising and promotion expense as the majority of theQUATTRO media campaign did not begin until October.
GENERAL CORPORATE AND OTHER EXPENSES
Corporate and other expenses increased $31.3 for the year, primarily reflecting higher legal, integration and business realignment costs, and higher management and administrative costs following the SWS acquisition. Integration costs of $17.9 in 2004 and $6.3 in 2003 are reflected in corporate and general expenses. Major integration activities have been completed as of September 30, 2004. Annual integration savings are projected at approximately $18 for 2005, of which approximately $13 was realized in 2004 and is reflected in segment results. Legal expense increased $11.7 reflecting the impact of litigation costs in a number of lawsuits, primarily related to intellectual property matters.
General corporate and other expenses increased $14.7 in 2003 reflecting costs of integrating the SWS business of $6.3, as well as lower pension income and higher management, legal and project expenses, partially offset by lower compensation costs related to incentive plans and stock price.
As a percent of sales, general corporate and other expenses were 2.9% in 2004, 2.2% in 2003 and 2.0% in 2002. The increase in 2004 is driven mainly by the integration and legal expenses discussed above.
RESTRUCTURING CHARGES
In March 2002, the Company adopted a restructuring plan to reorganize certain European selling, management, administrative and packaging activities. The total cost of this plan was $6.7 before taxes. These restructuring charges consist of $5.2 for cash severance payments, $1.0 of other cash charges and $0.5 in enhanced pension benefits. As of September 30, 2004, 55 employees had been terminated under the plan and all activities under the plan have been completed. The 2002 restructuring plan yielded pre-tax savings of $2.5 in 2003 and $4.5 annually thereafter.
During fiscal 2001, the Company adopted restructuring plans to eliminate carbon zinc capacity and to reduce and realign certain selling, production, research and administrative functions. In 2002, the Company recorded provisions for restructuring of $1.4 related to the 2001 plan and recorded net reversals of previously recorded restructuring charges of $0.4.
The 2001 restructuring plans improved the Company’s operating efficiency, downsized and centralized corporate functions, and decreased costs. One carbon zinc production facility in Mexico was closed in early 2002. A total of 539 employees were terminated, consisting of 340 production and 199 sales, research and administrative employees, primarily in the U.S. and South and Central America. The 2001 restructuring plan yielded pre-tax savings of $14.3 in 2002 and $16.5 in 2003 and beyond.
The Company continues to review its battery production capacity and its business structure in light of pervasive global trends, including the evolution of technology. Future restructuring activities and charges may be necessary to optimize its production capacity. Such charges may include impairment of production assets and employee termination costs.
See Note 4 to the Consolidated Financial Statements for a table that presents, by major cost component and by year of provision, activity related to the restructuring charges discussed above during fiscal years 2004, 2003 and 2002 including any adjustments to the original charges.
SPECIAL PENSION TERMINATION BENEFITS
During the fourth quarter of fiscal 2004, Energizer announced a Voluntary Enhanced Retirement Option (VERO) offered to approximately 600 eligible employees in the U.S., of which 321 employees accepted. A charge of $15.2, pre-tax, was recorded during the fourth quarter of fiscal 2004 related to the VERO and certain other special pension benefits and the estimated impact of such benefits on the Company's pension plan is reflected in the amounts shown in Note 12 to the Consolidated Financial Statements. Future cost savings from the VERO program are expected to be approximately $9 to $12 annually, with about half that amount realized in 2005.
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.
INTEREST AND OTHER FINANCING ITEMS
Interest expense was $2.6 higher for the year on higher average debt, offset by lower interest rates. Higher average debt reflects the borrowings for the SWS acquisition outstanding for a full year in 2004 compared to six months in 2003. The lower effective interest rate for 2004 was a result of paying off high fixed rate debt in September 2003 and generally lower rates on variable rate debt. Interest expense increased $7.1 in 2003 reflecting incremental debt due to the acquisition of SWS, partially offset by lower interest rates.
Other financing expense declined $13.7 for the year compared to the same period last year, which included a $20.0 charge in 2003 related to early repayment of debt. Additionally, 2004 experienced net currency exchange losses compared to net gains in 2003. Other financing costs increased $15.6 in 2003, primarily due to a $20.0 charge related to early payment of long-term debt, partially offset by net currency exchange gains in 2003.
INCOME TAXES
Income taxes, which include federal, state and foreign taxes, were 25.3%, 28.5%, and 33.1% of earnings before income taxes in 2004, 2003 and 2002, respectively. Earnings before income taxes and income taxes include certain unusual items and adjustments to prior recorded tax accruals in all years, which impact the overall tax rate. The most significant of these are described below:
| · | In 2004, 2003 and 2002, $16.2, $12.2 and $6.7, respectively, of tax benefits related to prior years’ losses were recorded. |
| · | Adjustments were recorded in each of the three years to revise previously recorded tax accruals, which were based on estimates when recorded. Such adjustments decreased the income tax provision by $8.5, $7.0 and $5.1 in 2004, 2003 and 2002, respectively. |
| · | The tax benefit related to the write-up of acquired SWS inventory of $89.7, all of which was recorded to cost of products sold in 2003, was higher than the overall tax rate for the remainder of the business, and thus reduced the overall tax rate by 1.8 percentage points. |
Excluding the items discussed above, the income tax percentage was 32.2% in 2004, 36.1% in 2003 and 37.3% in 2002. The improved tax rate in 2004 reflects a significantly lower rate on foreign income due to improved foreign earnings and overall country mix. Such improvements reflect better battery results as well as a favorable impact from the inclusion of SWS.
The Company's effective tax rate is highly sensitive to country mix from which earnings or losses are derived. To the extent future earnings levels and country mix are similar to the 2004 level and excluding any unusual or non-recurring tax items, future tax rates would likely be in the 31-33% range. Declines in earnings in lower tax rate countries, earnings increase in higher tax countries or operating losses in the future could increase future tax rates.
SPECIAL PURPOSE ENTITY
The Company routinely sells a pool of U.S. accounts receivable through a financing arrangement between Energizer Receivables Funding Corporation (the SPE), which is a bankruptcy-remote special purpose entity subsidiary of the Company, and an outside party (the Conduit). The terms of the arrangement were amended in April 2004 providing, among other things, the ability of the Company to repurchase accounts receivable sold to the Conduit if it so chooses. Under the amended structure, funds received from the Conduit are treated as borrowings rather than proceeds of accounts receivables sold for accounting purposes. Prior to the amendment, this financing arrangement was required to be accounted for as a sale of receivables, representing “off balance sheet financing.” Under accounting required for the former agreement, reported balance sheet captions were higher or lower than such amounts would have bee n reported under the amended structure as presented below.
| | | As of September 30, | |
| | | 2003 | |
| Additional accounts receivable | | $ | 175.7 | |
| | | | | |
| Additional notes payable | | $ | 75.0 | |
| | | | | |
| Lower other current assets | | $ | 100.7 | |
LIQUIDITY AND CAPITAL RESOURCES
In 2004, cash flow from operations totaled $485.7, an increase of $43.6 from 2003. The increase is due to higher “operating cash flow before changes in working capital” of $164.5, partially offset by lower conversion of working capital items to cash. The 2003 cash flow reflects an unusually large change in inventory balance as described below, accounting for the decline in 2004.
Cash flow from operations totaled $442.1 in 2003, an increase of $236.0 from 2002 operating cash flows of $206.1. The increase is due to cash generated from working capital changes of $201.9 compared to cash outflows for working capital in 2002 of $53.7, partially offset by lower cash flow from earnings before working capital changes. The most significant working capital changes were: 1) a $148.0 reduction in inventory, reflecting the conversion of high cost acquired SWS inventory to lower cost SWS inventory manufactured after acquisition as well as other inventory reductions; and 2) a $136.2 cash flow improvement in other current assets, primarily related to the level of sales of accounts receivable by the Company's non-consolidated SPE; partially offset by 3) unfavorable cash flow from increases in accounts receivable in 2003. Cash flow from operations before changes in working capital were $240.2 in 2003 compared to $259.8 in 2002. The decrease was mainly due to lower net earnings caused by the $58.3 after-tax SWS inventory write-up discussed previously, partially offset by higher earnings for the remainder of the business.
Working capital was $468.8 and $515.6 at September 30, 2004 and 2003, respectively. Working capital components were influenced by the special purpose entity accounting previously discussed, but with no net impact on total working capital. Apart from such accounting impact, working capital changes reflect higher cash and accounts receivable, more than offset by higher other accrued liabilities. Capital expenditures totaled $121.4, $73.0 and $40.7 in 2004, 2003 and 2002, respectively. These expenditures were funded by cash flow from operations. Capital expenditures increased in 2004 as a result of increases for battery production projects, inclusion of SWS for a full year and corporate expenditures. The increase in 2003 is primarily attributable to the SWS acquisition. See Note 22 of the Consolidated Financial Statements for capital expenditures by segment. Capital expenditures of approximately $112.0 ar e anticipated in 2005. Such expenditures are expected to be financed with funds generated from operations.
Total long-term debt outstanding, including current maturities, was $1,079.6 at September 30, 2003. The Company maintains total committed debt facilities of $1,239.0, of which $155.8 remained available as of September 30, 2004.
A summary of the Company’s significant contractual obligations at September 30, 2004 is shown below. See Note 20 to the Consolidated Financial Statements for discussion of loan guarantees.
| | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Long-term debt, including current maturities | | $ | 1,079.6 | | $ | 20.0 | | $ | 354.6 | | $ | 135.0 | | $ | 570.0 | |
| | | | | | | | | | | | | | | | | |
| Notes payable | | | 162.3 | | | 162.3 | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | |
| Operating leases | | | 67.0 | | | 15.7 | | | 22.5 | | | 16.5 | | | 12.3 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 1,308.9 | | $ | 198.0 | | $ | 377.1 | | $ | 151.5 | | $ | 582.3 | |
| | | | | | | | | | | | | | | | | |
In November 2004, the Company entered into two new financing agreements. A $300.0 long-term debt financing was completed, with maturities of three, five and seven years and with fixed rates ranging from 3.44% to 4.38%. Proceeds from these notes were used to pay down all existing long-term debt in the revolving credit facility and to partially retire short-term debt within the secured financing. In addition, the Company renegotiated its existing revolving credit facility in order to extend the maturity to five years and to realize more favorable borrowing spreads. As a result of the new financing arrangement, available committed debt facilities increased by $300.0 to $1,539.0.
Under the terms of the Company’s debt facilities, the ratio of the Company’s total indebtedness to its Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) (as defined by the facility agreement and pro forma in the current year) cannot be greater than 3.5 to 1, and the ratio of its current year pro forma EBIT to total interest expense must exceed 3 to 1. The Company’s ratio of total indebtedness to its pro forma EBITDA was 2.4 to 1, and the ratio of its pro forma EBIT to total interest expense was 13.0 to 1 as of September 30, 2004. Additional restrictive covenants exist under current debt facilities. Failure to comply with the above ratios or other covenants could result in acceleration of maturity, which could trigger cross defaults on other borrowings. The Company believes that covenant violations resulting in acceleration of maturity is unlikely. The Company’s fixe d rate debt is callable by the Company, subject to a “make whole” premium, which would be required to the extent the underlying benchmark U.S. treasury yield has declined since issuance.
The Company purchased shares of its common stock under various Board of Director approved repurchase plans as follows (shares in millions):
Fiscal Year | | Shares | | Cost |
| | | | | |
| 2004 | | 13.4 | | $546.7 |
| 2003 | | 5.0 | | $131.4 |
| 2002 | | 3.8 | | $103.3 |
| 2001 | | 3.8 | | $79.6 |
Most recently, the Board of Directors approved the repurchase of up to an additional 10 million shares, which resolution replaced all previous authorizations. Subsequent to September 30, 2004 and through November 15, 2004, approximately 0.6 million shares were purchased for $25.0 under the most recent authorization, pursuant to the terms of a Rule 10b5-1 Repurchase Plan entered into with an independent broker. As of November 15, 2004 there are 7.7 million shares remaining under the current authorization.
The Company believes that cash flows from operating activities and periodic borrowings under existing credit facilities will be adequate to meet short-term and long-term liquidity requirements prior to the maturity of the Company's credit facilities, although no guarantee can be given in this regard.
INFLATION
Management recognizes that inflationary pressures may have an adverse effect on the Company, through higher material, labor and transportation costs, asset replacement costs and related depreciation, and other costs. In general, the Company has been able to offset or minimize inflation effects through other cost reductions and productivity improvements, thus inflation has not been a significant factor in the three years ended September 30, 2004. Recently, the cost of oil and commodities used in the Company’s products has increased to levels well above those of 2004. The Company’s ability to fully mitigate such cost increases through cost cutting and productivity or to raise prices in the future are not certain.
SEASONAL FACTORS
The Company's battery segment results are significantly impacted in the first quarter of the fiscal year by the additional sales volume associated with the December holiday season, particularly in North America. First quarter battery sales accounted for 31%, 32% and 33% of total battery net sales in 2004, 2003 and 2002, respectively.
ENVIRONMENTAL MATTERS
The operations of the Company, like those of other companies engaged in the battery and shaving products businesses, are subject to various federal, state, foreign and local laws and regulations intended to protect the public health and the environment. These regulations primarily relate to worker safety, air and water quality, underground fuel storage tanks and waste handling and disposal.
The Company has received notices from the U.S. Environmental Protection Agency, state agencies and/or private parties seeking contribution that it has been identified as a “potentially responsible party” (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act, and may be required to share in the cost of cleanup with respect to seven federal “Superfund” sites. It may also be required to share in the cost of cleanup with respect to a state-designated site. Liability under the applicable federal and state statutes which mandate cleanup is strict, meaning that liability may attach regardless of lack of fault, and joint and several, meaning that a liable party may be responsible for all of the costs incurred in investigating and cleaning up contamination at a site. However, liability in such matters is typically shared by all of the financially viable responsible parties, through negotiated agreements. Negotiations with the U.S. Environmental Protection Agency, the state agency that is involved on the state-designated site, and other PRPs are at various stages with respect to the sites. Negotiations involve determinations of the actual responsibility of the Company and the other PRPs at the site, appropriate investigatory and/or remedial actions, and allocation of the costs of such activities among the PRPs and other site users.
The amount of the Company’s ultimate liability in connection with those sites may depend on many factors, including the volume and toxicity of material contributed to the site, the number of other PRPs and their financial viability, and the remediation methods and technology to be used.
In addition, the Company undertook certain programs to reduce or eliminate the environmental contamination at the rechargeable battery facility in Gainesville, Florida, which was divested in November 1999. Responsibility for those programs was assumed by the buyer at the time of the divestiture. In 2001, the buyer, as well as its operating subsidiary which owns and operates the Gainesville facility, filed petitions in bankruptcy. In the event that the buyer and its affiliates become unable to continue the programs to reduce or eliminate contamination, the Company could be required to bear financial responsibility for such programs as well as for other known and unknown environmental conditions at the site. Under the terms of the Reorganization Agreement between the Company and Ralston Purina Company, however, which has been assumed by an affiliate of The Nestle Corporation, Ralston’s successor is obligated to indemnify the Company for 50% of any such liabilities in excess of $3.0.
Under the terms of the Stock and Asset Purchase Agreement between Pfizer, Inc. and the Company, relating to the acquisition of the SWS business, environmental liabilities related to pre-closing operations of that business, or associated with properties acquired, are generally retained by Pfizer, subject to time limitations varying from two years to 10 years following closing with respect to various classes or types of liabilities, minimum thresholds for indemnification by Pfizer, and maximum limitations on Pfizer’s liability, which thresholds and limitations also vary with respect to various classes or types of liabilities.
Many European countries, as well as the European Union, have been very active in adopting and enforcing environmental regulations. In many developing countries in which the Company operates, there has not been significant governmental regulation relating to the environment, occupational safety, employment practices or other business matters routinely regulated in the U.S. As such economies develop, it is possible that new regulations may increase the risk and expense of doing business in such countries.
Accruals for environmental remediation are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. These accruals are adjusted periodically as assessments take place and remediation efforts progress, or as additional technical or legal information becomes available.
Accrued environmental costs at September 30, 2004 were $7.5, of which $1.8 is expected to be spent in fiscal 2005. This accrual is not measured on a discounted basis. It is difficult to quantify with certainty the cost of environmental matters, particularly remediation and future capital expenditures for environmental control equipment. Nevertheless, based on information currently available, the Company believes the possibility of material environmental costs in excess of the accrued amount is remote.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The market risk inherent in the Company’s financial instruments and positions represents the potential loss arising from adverse changes in interest rates, foreign currency exchange rates and stock price. The following risk management discussion and the estimated amounts generated from the sensitivity analyses are forward-looking statements of market risk assuming certain adverse market conditions occur.
Interest Rates
At September 30, 2004 and 2003, the fair market value of the Company's fixed rate debt is estimated at $358.4 and $336.9, respectively using yields obtained from independent pricing sources for similar types of borrowing arrangements. The fair value of debt is lower than the carrying value of the Company's debt at September 30, 2004 and 2003 by $16.6 and $38.1, respectively. A 10% adverse change in interest rates on fixed-rate debt would have decreased the fair market value by $1.7 and $3.8 at September 30, 2004 and 2003, respectively.
The Company has interest rate risk with respect to interest expense on variable rate debt. At September 30, 2004 and 2003, the Company had $866.9 and $624.7 variable rate debt outstanding, respectively. The book value of the Company’s variable rate debt approximates fair value. A hypothetical 10% adverse change in all interest rates would have had an annual unfavorable impact of $2.4 and $1.3 in 2004 and 2003, respectively, on the Company’s earnings before taxes and cash flows, based upon these year-end debt levels. The primary interest rate exposures on variable rate debt are short-term rates in the U.S. and certain Asian countries.
Foreign Currency Exchange Rates
The Company employs a foreign currency hedging strategy which focuses on mitigating potential losses in earnings or cash flows on foreign currency transactions, which primarily consist of anticipated intercompany purchase transactions and intercompany borrowings. External purchase transactions and intercompany dividends and service fees with foreign currency risk are also hedged from time to time. The primary currencies to which the Company’s foreign affiliates are exposed include the U.S. dollar, the euro, the yen, and the British pound.
The Company’s hedging strategy involves the use of natural hedging techniques, where possible, such as the offsetting or netting of like foreign currency cash flows. Where natural hedging techniques are not possible, foreign currency derivatives with a duration of generally one year or less may be used, including forward exchange contracts, purchased put and call options, and zero-cost option collars. The Company policy allows foreign currency derivatives to be used only for identifiable foreign currency exposures and, therefore, the Company does not enter into foreign currency contracts for trading purposes where the sole objective is to generate profits. The Company has not designated any financial instruments as hedges for accounting purposes in the three years ended September 30, 2004.
Market risk of foreign currency derivatives is the potential loss in fair value of net currency positions for outstanding foreign currency contracts at fiscal year-end, resulting from a hypothetical 10% adverse change in all foreign currency exchange rates. Market risk does not include foreign currency derivatives that hedge existing balance sheet exposures, as any losses on these contracts would be fully offset by exchange gains on the underlying exposures for which the contracts are designated as hedges. Accordingly, the market risk of the Company’s foreign currency derivatives at September 30, 2004 and 2003 amounts to $5.7 and $1.7, respectively.
The Company generally views its investments in foreign subsidiaries with a functional currency other than the U.S. dollar as long-term. As a result, the Company does not generally hedge these net investments. Capital structuring techniques are used to manage the net investment in foreign currencies as necessary. Additionally, the Company attempts to limit its U.S. dollar net monetary liabilities in countries with unstable currencies. In March 2002, the Company contributed $8.4 of capital to its Argentine subsidiary sufficient to repay all U.S. dollar liabilities in order to mitigate exposure to currency exchange losses.
Stock Price
A portion of the Company’s deferred compensation liabilities is based on the Company’s stock price and is subject to market risk. The Company entered into a prepaid share option with a financial institution to mitigate this risk (see Note 18 to the Consolidated Financial Statements). The change in fair value of the prepaid share option is recorded in selling, general and administrative expense. Changes in value of the prepaid share option should mitigate changes in the after-tax deferred compensation liabilities tied to the Company’s stock price. Market value of the prepaid share options was $22.1 and $39.7 at September 30, 2004 and 2003, respectively. The change in fair value of the prepaid share option for the year ended September 30, 2004 and 2003 resulted in income of $8.8 and $5.1, respectively.
CRITICAL ACCOUNTING POLICIES
The Company identified the policies below as critical to its business operations and the understanding of its results of operations. The impact and any associated risks related to these policies on its business operations is discussed throughout Management’s Discussion and Analysis of Results of Operations and Financial Condition where such policies affect the reported and expected financial results.
Preparation of the financial statements in conformity with generally accepted accounting principles (GAAP) in the U.S. requires 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 ongoing basis, the Company evaluates its estimates, including those related to customer programs and incentives, bad debts, inventories, intangible assets and other long-lived assets, income taxes, financing operations, pensions and other postretirement benefits, contingencies and acquisitions. Actual results could differ from those estimates. This listing is not intended to be a comprehensive list of all of the Company’s accounting policies.
| · | Revenue Recognition- The Company's revenue is from the sale of its products. Revenue is recognized when title, ownership and risk of loss passes to the customer. Discounts are offered to customers for early payment and an estimate of such discounts is recorded as a reduction of net sales in the same period as the sale. Our standard sales terms are final and returns or exchanges are not permitted unless a special exception is made; reserves are established and recorded in cases where the right of return does exist for a particular sale. The Company offers a variety of programs, primarily to its retail customers, designed to promote sales of its products. Such programs require periodic payments and allowances based on estimated results of specific programs and are recorded as a reduction to net sales. The Company accrues at the time of sale the estimated total payments and allowances associated with each transaction. Additionally, the Company offers programs directly to consumers to promote the sale of its products. Promotions which reduce the ultimate consumer sale prices are recorded as a reduction of net sales at the time the promotional offer is made, generally using estimated redemption and participation levels. The Company continually assesses the adequacy of accruals for customer and consumer promotional program costs not yet paid. To the extent total program payments differ from estimates, adjustments may be necessary. Historically, these adjustments have not been material. |
| · | Allowance for Doubtful Accounts- The Company maintains an allowance for doubtful accounts receivable for estimated losses resulting from customers that are unable to meet their financial obligations. The financial condition of specific customers is considered when establishing the allowance. Provisions to increase the allowance for doubtful accounts are included in selling, general and administrative expense. If actual bad debt losses exceed estimates, additional provisions may be required in the future. |
| · | Pension Plans and Other Postretirement Benefits- The determination of the Company’s obligation and expense for pension and other postretirement benefits is dependent on certain assumptions developed by the Company and used by actuaries in calculating such amounts. Assumptions include, among others, the discount rate, future salary increases and the expected long-term rate of return on plan assets. Actual results that differ from assumptions made are accumulated and amortized over future periods and, therefore, generally affect the Company’s recognized expense and recorded obligation in such future periods. Significant differences in actual experience or significant changes in assumptions may materially affect pension and other postretirement obligations. Of the assumptions listed above, changes in the expected assets return have the most significant impact on the Company’s annual earnings prospectively. A one perc entage point decrease or increase in expected assets return would decrease or increase the Company’s pre-tax pension expense by $6.1. |
| · | Valuation of Long-Lived Assets- The Company periodically evaluates its long-lived assets, including goodwill and intangible assets, for potential impairment indicators. Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance. Future events could cause the Company to conclude that impairment indicators exist. The Company uses the discounted cash flows method to determine if impairment exists. This requires management to make assumptions regarding future income, working capital and discount rates, which would affect the impairment calculation. |
| · | Income Taxes- The Company estimates income taxes and the income tax rate in each jurisdiction that it operates. This involves estimating taxable earnings, specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets, and possible exposures related to future tax audits. To the extent these estimates change, adjustments to income taxes are made in the period in which the estimate is changed. |
| · | Acquisitions- The Company uses the purchase method that requires the allocation of the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the cost of an acquired business over the fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact the determination of future operating results. The Company uses a variety of information sources to determine the value of acquired assets and liabilities including: third-party appraisers for the value and lives of property, identifiable intangibles and inventories; actuaries for defined benefit retirement plans; and legal counsel or other experts to assess the obligations associated with legal, environmental and other claims. |
RECENTLY ISSUED ACCOUNTING STANDARDS
See discussion in Note 2 to the Consolidated Financial Statements.
FORWARD-LOOKING INFORMATION
Statements in the Management’s Discussion and Analysis of Results of Operations and Financial Condition and other sections of this Annual Report to Shareholders that are not historical, particularly statements regarding increases in household battery consumption, the potential for leveraging Energizer’s operating strengths to benefit the SWS business, and projected annual integration savings, the impact of changes in the value of local currencies on segment profitability, Energizer’s estimates of its share of total U.S. retail alkaline market, and SWS share of the wet shave category in various markets, Energizer’s positioning to meet consumer demand and the benefits of its portfolio of products, the Company’s assessment of the wet shave products category and the SWS business, the potential for future restructuring activity, the timing and amount of future cost savings from the VERO program, the estimates of the Company’s future tax rates, estimated capital expenditures for fiscal 2005 and their source of financing, the likelihood of acceleration of its debt covenants, the anticipated adequacy of cash flows and the Company’s ability to meet liquidity requirements, the materiality of future expenditures for environmental matters and environmental control equipment, the impact of adverse changes in interest rates, the market risk of foreign currency derivatives, the potential loss in value of the Company’s net foreign currency investment in foreign subsidiaries, and the mitigating impact of changes in value of the prepaid share option on deferred compensation liabilities may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.
The Company advises readers that various risks and uncertainties could affect its financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected. Battery consumption trends could be negatively impacted by general economic conditions or product innovations. Continuing opportunities to integrate SWS activities with Energizer’s, and to leverage Energizer’s operating strengths, may be limited, and may not result in anticipated annual savings or growth in SWS sales. Energizer’s estimates of its U.S. alkaline market share, and estimates of SWS share of the wet shave category may be inaccurate, or may not reflect segments of the retail market. Shifts in consumer demands or needs, competitive activity or product improvements, or further retailer consolidations may dilute or defeat the benefits of the Company’s c onsumer positioning and strategy. General economic conditions, retailer pressure and competitive activity may negatively impact the outlook for the wet shave products category. Because of that competitive activity, the SWS business may not be able to increase sales or margins, and could lose current market position. The migration of demand from carbon zinc to alkaline or from alkaline to other technologies may increase the likelihood of future restructuring activities and charges. Unforeseen fluctuations in levels of the Company’s operating cash flows, or inability to maintain compliance with its debt covenants, could limit the Company’s ability to meet future operating expenses and liquidity requirements, fund capital expenditures or service its debt as it becomes due. U.S. or international political or economic crises could result in higher levels of inflation than anticipated, and the Company may not be able to realize cost reductions, productivity improvements or price increases which are substantial enough to counter the inflationary impact. Unknown environmental liabilities and greater than anticipated remediation expenses or environmental control expenditures could have a material impact on the Company’s financial position. Estimates of environmental liabilities are based upon, among other things, the Company’s payments and/or accruals with respect to each remediation site; the number, ranking and financial strength of other responsible parties (PRPs), the status of the proceedings, including various settlement agreements, consent decrees or court orders; allocations of volumetric waste contributions and allocations of relative responsibility among PRPs developed by regulatory agencies and by private parties; remediation cost estimates prepared by governmental authorities or private technical consultants; and the Company’s historical experience in negotiating and settling disputes with respect to similar sites - and such estimates may prove to be inaccurate. Anticipated long - -term cost savings associated with job eliminations or replacements with lower-priced workers as a result of the VERO may not materialize, depending upon longer-term production needs and the competitive job market in communities where the Company’s facilities are located. The Company’s overall tax rate in future years may be higher than anticipated because of unforeseen changes in the tax laws or applicable rates, higher taxes on repatriated earnings, increased earnings in countries with higher tax rates or increased foreign losses. Economic turmoil and currency fluctuations could increase the Company’s risk from unfavorable impacts on variable-rate debt, currency derivatives and other financial instruments, as well as increase the potential loss in value of its net foreign currency investment in foreign subsidiaries. Deferred compensation liabilities reflecting the value of the Common Stock may increase significantly, depending on market fluctuation and employee elections, which such inc rease may not be reflected in a comparable increase in the value of the prepaid share option. Additional risks and uncertainties include those detailed from time to time in the Company’s publicly filed documents, including its Registration Statement on Form 10, as amended, and its Current Report on Form 8-K dated April 25, 2000.
Energizer Holdings, Inc. | | | | | | | | | | | |
Summary Selected Historical Financial Information | | | | | | | | | | | |
| (Dollars in millions, except per share data) | | | | | | | | | | | |
| | | | | | | | | | | | |
Statement of Earnings Data | | FOR THE YEAR ENDED SEPTEMBER 30, | |
| | | 2004 | | 2003 (a) | | 2002 | | 2001 | | 2000 | |
| Net sales | | $ 2,812.7 | | $ 2,232.5 | | $ 1,739.7 | | $ 1,694.2 | | $ 1,927.7 | |
| | | | | | | | | | | | |
| Depreciation and amortization (b) | | | 115.8 | | | 83.2 | | | 57.4 | | | 79.8 | | | 82.0 | |
| | | | | | | | | | | | | | | | | |
| Earnings from continuing operations before income taxes (c) | | | 358.0 | | | 237.6 | | | 278.4 | | | 31.5 | | | 279.2 | |
| | | | | | | | | | | | | | | | | |
| Income taxes | | | 90.6 | | | 67.7 | | | 92.0 | | | 70.5 | | | 99.0 | |
| | | | | | | | | | | | | | | | | |
| Earnings/(loss) from continuing operations (d) | | | 267.4 | | | 169.9 | | | 186.4 | | | (39.0 | ) | | 180.2 | |
| | | | | | | | | | | | | | | | | |
| Net earnings/(loss) | | | 267.4 | | | 169.9 | | | 186.4 | | | (39.0 | ) | | 181.4 | |
| | | | | | | | | | | | | | | | | |
| Earnings/(loss) per share from continuing operations: | | | | | | | | | | | | | | | | |
| Basic | | $ | 3.32 | | $ | 1.98 | | $ | 2.05 | | $ | (0.42 | ) | $ | 1.88 | |
| Diluted | | $ | 3.21 | | $ | 1.93 | | $ | 2.01 | | $ | (0.42 | ) | $ | 1.87 | |
| | | | | | | | | | | | | | | | | |
| Average shares outstanding (e) | | | | | | | | | | | | | | | | |
| Basic | | | 80.6 | | | 85.9 | | | 91.0 | | | 92.6 | | | 96.1 | |
| Diluted | | | 83.4 | | | 88.2 | | | 92.8 | | | 94.1 | | | 96.3 | |
| | | | | | | | | | | | | | | | | |
| | | | |
Balance Sheet Data | | | SEPTEMBER 30, |
| | | | 2004 | | | 2003 (a | ) | | 2002 | | | 2001 | | | 2000 | |
| Working capital | | $ | 468.8 | | $ | 515.6 | | $ | 353.3 | | $ | 288.1 | | $ | 401.7 | |
| | | | | | | | | | | | | | | | | |
| Property at cost, net | | | 705.6 | | | 701.2 | | | 455.7 | | | 476.1 | | | 485.4 | |
| | | | | | | | | | | | | | | | | |
| Additions (during the period) | | | 121.4 | | | 73.0 | | | 40.7 | | | 77.9 | | | 72.8 | |
| | | | | | | | | | | | | | | | | |
| Depreciation (during the period) | | | 110.0 | | | 80.5 | | | 57.4 | | | 58.6 | | | 57.9 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | | 2,915.7 | | | 2,732.1 | | | 1,588.1 | | | 1,497.6 | | | 1,793.5 | |
| | | | | | | | | | | | | | | | | |
| Long-term debt | | | 1,059.6 | | | 913.6 | | | 160.0 | | | 225.0 | | | 370.0 | |
| | | | | | | | | | | | | | | | | |
| (a) Schick-Wilkinson Sword was acquired March 28, 2003. See Note 3 to the Consolidated Financial Statements. | |
| | | | | | | | | | | | | | | | | |
| (b) Energizer adopted Statement of Financial Accounting Standards 142 at the beginning of fiscal year 2002, which eliminated amortization of | |
| goodwill and certain intangible assets. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (c) Earnings from continuing operations before income taxes were (reduced)/increased due to the following items: | |
| | | | | | | | | | | | | | | | | |
| | | | FOR THE YEAR ENDED SEPTEMBER 30, | |
| | | | 2004 | | | 2003 | | | 2002 | | | 2001 | | | 2000 | |
| Provisions for restructuring and related costs | | $ | - | | $ | (0.2 | ) | $ | (10.3 | ) | $ | (29.8 | ) | $ | - | |
| Special terminations benefits | | | (15.2 | ) | | - | | | - | | | - | | | - | |
| Acquisition inventory valuation | | | - | | | (89.7 | ) | | - | | | - | | | - | |
| Early debt payoff | | | - | | | (20.0 | ) | | - | | | - | | | - | |
| Kmart accounts receivable write-down | | | - | | | - | | | (15.0 | ) | | - | | | - | |
| Gain on sale of property | | | - | | | 5.7 | | | 6.3 | | | - | | | - | |
| Intellectual property rights income | | | 1.5 | | | 8.5 | | | - | | | 20.0 | | | - | |
| Provision for goodwill impairment | | | - | | | - | | | - | | | (119.0 | ) | | - | |
| Loss on disposition of Spanish affiliate | | | - | | | - | | | - | | | - | | | (15.7 | ) |
| Costs related to spin-off | | | - | | | - | | | - | | | - | | | (5.5 | ) |
| Total | | $ | (13.7 | ) | $ | (95.7 | ) | $ | (19.0 | ) | $ | (128.8 | ) | $ | (21.2 | ) |
| | | | | | | | | | | | | | | | | |
| (d) Net earnings/(loss) from continuing operations were (reduced)/increased due to the following items: | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | FOR THE YEAR ENDED SEPTEMBER 30, | |
| | | | 2004 | | | 2003 | | | 2002 | | | 2001 | | | 2000 | |
| Provisions for restructuring and related costs, net of tax | | $ | - | | $ | - | | $ | (7.8 | ) | $ | (19.4 | ) | $ | - | |
| Special termination benefits, net of tax | | | (9.6 | ) | | - | | | - | | | - | | | - | |
| Acquisition inventory valuation, net of tax | | | - | | | (58.3 | ) | | - | | | - | | | - | |
| Early debt payoff, net of tax | | | - | | | (12.4 | ) | | - | | | - | | | - | |
| Kmart accounts receivable write-down, net of tax | | | - | | | - | | | (9.3 | ) | | - | | | - | |
| Gain on sale of property, net of tax | | | - | | | 5.7 | | | 5.0 | | | - | | | - | |
| Tax benefits recognized related to prior years' losses | | | 16.2 | | | 12.2 | | | 6.7 | | | - | | | - | |
| Adjustments to prior year tax accruals | | | 8.5 | | | 7.0 | | | 5.1 | | | 3.5 | | | - | |
| Intellectual property rights income, net of tax | | | 0.9 | | | 5.2 | | | - | | | 12.3 | | | - | |
| Provision for goodwill impairment, net of tax | | | - | | | - | | | - | | | (119.0 | ) | | - | |
| Loss on disposition of Spanish affiliate, net of tax | | | - | | | - | | | - | | | - | | | (15.7 | ) |
| Costs related to spin-off, net of tax | | | - | | | - | | | - | | | - | | | (3.3 | ) |
| Capital loss tax benefits | | | - | | | - | | | - | | | - | | | 24.4 | |
| Total | | $ | 16.0 | | $ | (40.6 | ) | $ | (0.3 | ) | $ | (122.6 | ) | $ | 5.4 | |
| | | | | | | | | | | | | | | | | |
| (e) Basic earnings per share for 2001 through 2004 is based on the weighted-average number of shares outstanding during the period. | | | |
| Diluted earnings per share for 2001 through 2004 is based on the weighted-average number of shares used in the basic earnings per share | | |
| calculation, adjusted for the dilutive effect of stock options and restricted stock equivalents. In fiscal 2001, the potentially dilutive securities | | |
| were not included in the dilutive earnings per share calculation due to their anti-dilutive effect. In fiscal year 2000, earnings per share | | | | |
| was based on the weighted-average number of shares outstanding of Ralston common stock prior to the spin-off, adjusted for the distribution of | | | |
| one share of Energizer stock for three shares of Ralston stock. | | | | | | | | | | | | | | | | |
The preparation and integrity of the financial statements of Energizer Holdings, Inc. are the responsibility of its management. These statements have been prepared in conformance with generally accepted accounting principles in the United States of America, and in the opinion of management, fairly present Energizer's financial position, results of operations and cash flows.
Energizer maintains accounting and internal control systems, which it believes are adequate to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition and that the financial records are reliable for preparing financial statements. The selection and training of qualified personnel, the establishment and communication of accounting and administrative policies and procedures, and an extensive program of internal audits are important elements of these control systems.
The report of PricewaterhouseCoopers LLP, independent auditors, on their audits of the accompanying financial statements is shown below. This report states that the audits were made in accordance with generally accepted auditing standards in the United States of America. These standards include a study and evaluation of internal control for the purpose of establishing a basis for reliance thereon relative to the scope of their audits of the financial statements.
The Board of Directors, through its Audit Committee consisting solely of nonmanagement directors, meets periodically with management, internal audit and the independent auditors to discuss audit and financial reporting matters. To assure independence, PricewaterhouseCoopers LLP has direct access to the Audit Committee.
