Note 14- The Company purchased approximately 1.0 million shares of its common stock during the quarter ended March 31, 2005 under its August 2004 authorization from the Board of Directors. On August 30, 2004, the Company announced Board approval of a new authorization for the Company to acquire up to 10 million shares of its common stock, which replaced in its entirety a previous authorization dated January 26, 2004. 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.
Note 15- New Accounting Pronouncements:
On November 24, 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4.” SFAS 151 seeks to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) in the determination of inventory carrying costs. The statement requires such costs to be treated as a current period expense. This statement is effective October 1, 2006 for the Company. Although still reviewing the SFAS, the Company does not believe that the adoption of SFAS 151 will have a material impact on the consolidated financial statements of the Company.
FASB Staff Position 109-1 (FSP 109-1), “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004,” required companies eligible for a tax deduction resulting from “qualified production activities income” to treat this as a reduction to the income tax provision as realized. This deduction will not impact the Company until fiscal 2006. This deduction combined with the phase-out of the export incentive, is not expected to have a material impact on the consolidated financial statements of the Company.
FASB Staff Position 109-2 (FSP 109-2), “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” allows a company time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings. See Note 7 for further information.
On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R), which requires compensation cost relating to share-based payment transactions be recognized in financial statements. See Note 2 for further discussion.
Energizer Holdings, Inc.
and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk
Highlights / Operating Results
Net earnings for Energizer Holdings, Inc. (the Company) for the quarter ended March 31, 2005 were $57.6 or $0.81 per basic share and $0.78 per diluted share compared to $53.4, or $0.65 per basic share and $0.63 per diluted share for the same quarter last year. The current quarter includes $7.6 of reductions to prior year tax accruals and benefits of previously unrecognized tax benefits related to prior years' foreign losses, or $0.10 per diluted share. The prior year’s quarter results include tax benefits related to prior year losses of $9.5, or $0.11 per share.
For the six months ended March 31, 2005, net earnings for the Company were $179.3 or $2.50 per basic share and $2.41 per diluted share compared to $168.4, or $2.03 per basic share and $1.97 per diluted share for the same quarter last year. The current six month period includes the aforementioned tax adjustments. The prior year’s six month results include tax benefits related to prior year losses of $16.2, or $0.19 per share.
Net sales increased $36.1, or 6% for the quarter, driven by increases in both battery segments. Favorable currency translation rates accounted for $16.1 of the increase. Sales increased 3% on a constant currency basis. Net sales increased $100.3, or 7% for the six months with improvements in all three segments. Favorable currency translation rates accounted for $40.0 of the increase. Sales increased 4% on a constant currency basis. See the comments on sales by segment in the Segment Results section below.
Gross profit increased $15.8 for the quarter on $11.3 of favorable currency impacts and higher sales. Gross margin percentage decreased 0.5 percentage points to 50.7% for the current quarter primarily on lower razor and blade margins. Gross profit increased $52.0 for the six months including $28.0 from currencies and increases in both battery segments. Gross margin percentage was 50.8% compared to 50.7% for the same period last year. Both of the Company’s businesses have experienced higher costs for raw materials influenced by commodity costs. Through the first quarter of fiscal 2005, such increases have been more than offset by other cost savings and, additionally in the battery business, favorable production efficiencies and fixed cost absorption on high production levels following the high demand in the 2004 hurricane season. Hurricane benefits were exhausted early in the second quarter of 2005 resulting in overall unfavorable product cost in the current year. For the remainder of the year, at current pricing levels, the Company expects unfavorable year over year material and distribution costs of approximately $20.
Selling, general and administrative expenses increased $14.6 in the quarter with increases in all three business segments. Higher currency rates accounted for $3.2 of the increase. Selling, general and administrative expenses increased $30.8 in the six months, on higher corporate expenses and increases in all three business segments, with currency accounting for $7.1 of the increase. Selling, general and administrative expenses as a percent of sales were 22.3% and 19.0% in the current quarter and six months, respectively, compared to 21.2% and 18.2% in the same quarter and six months last year.
Advertising and promotion expense decreased $14.1 and $10.5 in the current quarter and six months, with declines in all three business segments. Advertising and promotion expense as a percent of sales was 11.9% and 11.4% in the current quarter and six months, respectively, compared to 15.0% and 12.9% in the same quarter and six months last year, respectively. The second quarter and six months of fiscal 2004 reflected significant incremental spending onQUATTRO andIntuition.
Through fiscal 2004, the Company recorded advertising and promotion expense (A&P) in each interim period based on a method that recognized the forecasted full year A&P ratably to forecasted revenues (Percent of Sales Method). When forecasts of A&P or revenues changed during the year, A&P rates were changed to reflect the new forecasts. Effective October 1, 2004, the Company began to expense A&P in the quarter incurred (As Incurred Method). The new method of accounting was adopted as it reduces the level of estimation in recording interim results and improves transparency of timing of A&P spending. The change in method has no impact on the total results for the year. The prior year financial information has not been restated for the As Incurred Method. Had the As Incurred Method been applied in the second quarter of 2004, net earnings and diluted earnings per share would have been $55.1 and $0.65, respectively, or $1.7 and $0.02 higher, respectively. For the first six months of 2004, net earnings and diluted earnings per share would have been $171.0 and $2.00, or $2.6 and $0.03 higher, respectively, had the As Incurred Method been applied. See Note 4 to the Condensed Financial Statements, which outlines the fiscal second quarter and first six months of fiscal 2004 on the As Incurred Method.
Research and development expense decreased $2.8 and $2.4 in the current quarter and six months, respectively. The prior year included a charge of $4.2 for a discontinued battery development project. Absent this item, research and development expense increased $1.4 and $1.8 in the current quarter and six months, respectively, due to increases in the Razors and Blades segment. Research and development as a percent of sales was 2.8% and 2.3% in the current quarter and six months, respectively, compared to 3.5% and 2.6% in the same quarter and six months last year, respectively. The higher percentages in the prior year include the aforementioned charge.
Segment Results
The Company’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). 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. Segment performance is evaluated based on segment operating profit, exclusive of general corporate expenses, costs associated with most restructuring, integration or business realignment, and amortization of intangible assets. Financial items, such as interest income and expense, are managed on a global basis at the corporate level.
The Company’s operating model is a combination of stand-alone and combined battery and razor and blades businesses, varying by country and region of the world. Shared functions include product warehousing and distribution, various transaction functions, legal and environmental activities, and in some countries, combined sales forces and management. For shared business functions, the Razor and Blades segment has been charged only the actual incremental cost incurred due to the additional work following the Schick-Wilkinson Sword (SWS) acquisition. Such amounts are less than fully allocated costs and do not represent the costs of such services if performed on a stand-alone basis.
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, 2005 and 2004.
North America Battery
| | | Quarter ended March 31, | | Six months ended March 31, | |
| | | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | | |
| Net sales | | $ | 213.5 | | $ | 187.5 | | $ | 599.9 | | $ | 557.4 | |
| Segment profit | | $ | 48.5 | | $ | 39.0 | | $ | 165.7 | | $ | 154.0 | |
Net sales for the current quarter were up $26.0, or 14% with higher volumes contributing $31.3, partially offset by unfavorable pricing and product mix.Energizer Max volume increased 10% while lithium and rechargeable products experienced growth in excess of 20%. Overall pricing and product mix was unfavorable due to price declines of non-Energizer branded products and the continuing shift to larger pack sizes, which sell at lower per unit prices. For the six months, net sales increased $42.5 or 8% on similar volume and pricing trends as in the quarter.
Gross margin increased $10.7 for the quarter and $15.2 in the six months, reflecting higher sales. Total product cost was roughly flat in the quarter as higher material and distribution costs tied to commodity and energy prices were nearly offset by favorable efficiencies and fixed cost absorption on high production levels following the high demand hurricane season of 2004, and other cost savings.
Segment profit increased $9.5 for the current quarter and $11.7 for the six months as improved gross profit and lower advertising expenses were partially offset by higher overhead costs. As noted above, Energizer changed its method of recording A&P expense in 2005. If last year’s A&P expense had been accounted for on the As Incurred Method, the year-over-year segment profit improvement in 2005 would have been $6.2 for the quarter and $4.0 for the six months due to the timing of A&P spending versus expensing last year.
In the U.S. retail battery category units increased an estimated 12% compared to the same quarter last year, while category value increased 7%. The U.S. retail battery category is defined as alkaline, carbon zinc, lithium, rechargeable and specialty batteries. Retail consumption of Energizer’s products increased an estimated 17% in units and 12% in value. Energizer estimates its share of the total retail battery category at approximately 35.5% for the quarter, up approximately 1.5 share points from the December 2004 quarter and the March 2004 quarter. Energizer’s growth in the battery category is being driven mainly by rechargeables and lithium products. Additionally, promoted volume as a percent of sales declined in the current quarter versus the same period last year. Energizer believes that retail inventory levels at March 31, 2005, were at seasonally normal levels.
Looking ahead, favorable production costs related to 2004 hurricane demand have been exhausted, while input costs, mainly driven by commodity prices, remain elevated. At current levels, Energizer estimates input costs for the North America segment will be unfavorable by approximately $10 in the last six months of 2005 compared to the same period in 2004. As a result, Energizer has announced price increases onEnergizer Max, Energizer e2, Eveready Gold andEveready Super Heavy Duty effective August 1.
International Battery
| | | Quarter ended March 31, | | Six months ended March 31, | |
| | | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | | |
| Net sales | | $ | 201.2 | | $ | 190.5 | | $ | 462.5 | | $ | 429.3 | |
| Segment profit | | $ | 40.4 | | $ | 34.3 | | $ | 105.1 | | $ | 83.2 | |
Net sales for International Battery increased $10.7, in the current quarter and $33.2, for the six months, with favorable currency translation accounting for $7.9 and $20.2 of the increase, respectively. Absent currency impacts, sales increased 1.5% in the quarter and 3% for the six months on higher volume, partially offset by unfavorable pricing and product mix. Segment profit increased $6.1 for the quarter and $21.9 for the six months, with currencies accounting for $3.5 and $9.0 of the increase, respectively. Absent currencies, segment profit for the quarter increased $2.6 or 8% primarily on lower A&P expense. For the six months, segment profit increased $12.9 or 16%, excluding currency impacts, reflecting higher sales, lower A&P expense and favorable product costs, partially offset by higher overhead expenses.
As noted above, Energizer changed its method of recording A&P expense in 2005. If last year’s A&P expense had been accounted for on the As Incurred Method, the segment profit improvement would have been $3.4 for the quarter and $11.0 for the six months due to the timing of A&P spending versus expensing last year.
Razors and Blades
| | | Quarter ended March 31, | | Six months ended March 31, | |
| | | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | | |
| Net sales | | $ | 214.3 | | $ | 214.9 | | $ | 442.5 | | $ | 417.9 | |
| Segment profit | | $ | 28.3 | | $ | 30.0 | | $ | 69.7 | | $ | 64.4 | |
Razor and blade sales for the quarter were flat compared to last year's second quarter, which included significant retail pipeline fill sales from new product launches. The current quarter’s sales include $18.4 of pipeline fill for the newQUATTRO for Women and benefited from $6.9 of favorable currencies. The second quarter last year included approximately $35 of pipeline fill for the launch ofQUATTRO andIntuition in European and Asian markets. Absent the impact of pipeline fill and currency, sales increased approximately $9 as the continuing growth of theQUATTRO,IntuitionandXtreme 3disposable brands was partially offset by decline in other products. Additionally overall pricing in the quarter was lower due to promotional pricing in Europe to adjust to competitive conditions. Segment profit for the quarter decreased $1.7 as lower A&P expense was more than offset by the lower pricing and higher product, management and research costs.
For the six months, sales increased $24.6 as $16.0 of favorable currency and higher first quarter volume were partially offset by lower pricing. Segment profit for the six months increased $5.3 with favorable currency contributing $4.4. Absent currencies, lower A&P expense was nearly offset by higher overhead costs.
As noted above, Energizer changed its method of recording A&P expense in 2005. If last year’s A&P expense had been accounted for on the As Incurred Method, segment profit would have increased $2.0 for the current quarter and $20.3 for the current six months. The difference between the Percent of Sales Method and the As Incurred Method in the Razor and Blades segment is largest in the first quarter of 2004 is due to timing of product launches and corresponding advertising campaigns in various countries.
SWS’ primary markets are the United States (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 21.5% for the year ending February 2005 versus 19.5% for the same period in 2004, reflecting successful launches of new products.
General Corporate and Other Expenses
Corporate and other expenses were essentially flat as lower costs of integrating SWS and other business realignment costs were offset by higher equity and compensation plan expenses. For the six months, corporate and other expenses were unfavorable $9.5 on higher equity and compensation plan expense, higher corporate overhead and information systems costs and lower pension costs, partially offset by lower integration and realignment costs.
Interest Expense and Other Financing Costs
Interest expense increased $5.7 and $9.5 for the quarter and six months, respectively, on higher average borrowings resulting from share repurchases and higher short-term interest rates.Other financing items were unfavorable $2.1 for the quarter and $0.9 for the six months versus the same periods last year, both of which included foreign currency gains.
Income Taxes
Income taxes for the current quarter were 21.5% of pre-tax income compared to 15.4% in the same quarter last year. The current quarter includes $7.6 of adjustments to prior year tax accruals and benefits of previously unrecognized tax benefits related to prior years' foreign losses. The prior year quarter included similar foreign loss benefits of $9.5, as well as an adjustment necessary to reduce the six month tax rate to the estimated full year rate. The first quarter last year also included $6.7 of foreign loss benefits, for a total of $16.2 in the six months ended March 31, 2004.
Absent the aforementioned items, income taxes for the current quarter and six months would have been 32.0% compared to 33.5% for the same periods last year. The decrease in tax rate is primarily attributable to improved earnings in lower tax rate jurisdictions.
The American Jobs Creation Act of 2004 (the Act) introduces a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. Currently, much uncertainty remains as to how to interpret certain provisions under the Act, and more guidance is expected in the future. The Company continues to evaluate the repatriation provision of the Act, and it is not yet known how much, if any, dividends will qualify under the Act and how much, if any, taxes associated with such dividends may be incurred.
Based on information currently available and potential sources of foreign subsidiary dividends, up to $300 may qualify under the Act and is being considered by the Company for repatriation. Such dividends could result in additional taxes of up to $15 in fiscal 2005. The amount of such dividends, if any, will depend on final regulatory guidance and interpretation, funding availability and regulatory limitations of foreign jurisdictions. Actual qualifying dividends and related taxes may be lower than the amounts stated above. The Company expects to complete its assessment by June 2005, or later if further regulatory guidance is not issued by that time. As of March 31, 2005, no impacts of the Act have been reflected in the Company's financial statements.
Financial Condition
At March 31, 2005, working capital was $613.5, compared to $468.8 at September 30, 2004 and $542.2 at March 31, 2004. The increase of $144.7 in working capital from September 30, 2004 was primarily due to lower accounts payable and accrued liabilities. The increase of $71.3 in working capital from March 31, 2004 is primarily due to higher cash and battery inventory.
Energizer’s total borrowings were $1,263.7 at March 31, 2005, $588.7 of which is tied to variable interest rates (primarily LIBOR). An increase in the applicable short-term rates of one full percentage point would increase annualized financing costs by $5.9.
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 a revolving credit facility and to partially retire short-term debt within a 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.
A summary of Energizer’s significant contractual obligations is shown below.
| | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | |
| | | | | | | | | | | | | | | | | |
| Long-term debt, including current maturities | | $ | 1,121.1 | | $ | 20.0 | | $ | 161.1 | | $ | 320.0 | | $ | 620.0 | |
| | | | | | | | | | | | | | | | | |
| Notes payable | | | 142.6 | | | 142.6 | | | - | | | - | | | - | |
| | | | | | | | | | | | | | | | | |
| Operating leases | | | 59.3 | | | 14.0 | | | 21.0 | | | 15.1 | | | 9.2 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 1,323.0 | | $ | 176.6 | | $ | 182.1 | | $ | 335.1 | | $ | 629.2 | |
Cash flow from operations was $167.0 for the six months ended March 31, 2005, down $82.7 from the same period a year ago. The primary reason for the decline relates to significant increases in current operating liabilities in the prior year compared to decreases in the current year, primarily due to timing of payments. Cash used in investing activities includes capital expenditures of $40.1 in the current six month period compared to $53.6 in the same period last year. Cash flow from financing activities includes the purchase of $149.9 of treasury stock in the current six months and $145.8 in the same period a year ago. The Company purchased approximately 1.0 million shares of its common stock during the quarter ended March 31, 2005 under its August 2004 authorization from the Board of Directors to acquire up to 10 million shares of its common stock, leaving 5.2 remaining on the current authorization. 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.
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 pro forma EBIT to total interest expense must exceed 3.0 to 1. Energizer’s ratio of total indebtedness to its EBITDA was 2.3 to 1, and the ratio of its EBIT to total interest expense was 10.8 to 1 as of March 31, 2005.
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.
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 re-purchase 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 receivable 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 the former agreement, reported balance sheet captions were higher or lower than such amounts would have been reported under the amended structure as follows:
| | | March 31, 2004 | |
| | | | |
| Additional accounts receivable | | $ | 119.5 | |
| | | | | |
| Additional notes payable | | | 50.0 | |
| | | | | |
| Lower other current assets | | | 69.5 | |
Forward-Looking Statements
Statements made in this document that are not historical, particularly statements regarding year over year material and distribution costs and unfavorable input costs for the last six months of 2005 compared to the same period in 2004, estimates of battery category growth, retail consumption of Energizer’s battery products, Energizer and SWS market share, retail inventory levels, potential dividends and related taxes to be repatriated under the Act, future repurchases of common stock, and the Company’s continuing ability to meet liquidity requirements, 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. Commodity price levels, which may be impacted by unforeseen increases in international demand, limitations on available supply, and increasing military requirements, may continue to increase at a rate higher than that anticipated by the Company, resulting in a significant negative impact on margins and earnings performance. Manufacturing efficiencies and efforts to further reduce costs may have a favorable impact on the Company’s production costs throughout the rest of the current year. At the same time, it is difficult to predict with any accuracy whether raw material, energy and distribution expenses, and other input costs, will stabilize or continue to increase, as such costs are impacted by multiple economic, political and other factors outside of Energizer’s control. Energizer’s estimates of battery category unit and value trends, retail consumption of its battery products on a unit and volume basis, Energizer and SWS market share, and retailer inventory levels are based solely on limited data available to Energizer and management’s reasonable assumptions about market conditions, and consequently 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 inventories in excess of the Company’s estimates, or if those retailers elect to further contract their inventory levels. Estimates of the amount of dividends available for repatriation under the Act, and related tax impacts are based on current regulatory guidance and interpretations thereof and may increase or decrease pending further regulatory guidance, funding availability and regulatory limitations of foreign jurisdictions. Decreases in available cash flows, credit limitations, changes in corporate strategy or objectives, potential acquisitions or capital expenditures, or other alternative uses for available cash, and stock market fluctuations could cause the management of the Company to terminate or freeze its stock repurchase program. Unforeseen fluctuations in levels of the Company’s operating cash flows, or inability to maintain compliance with its debt covenants could also limit the Company’s ability to meet future operating expenses and liquidity requirements, fund capital expenditures, or service its debt as it becomes due. Additional risks and uncertainties include those detailed from time to time in the Company’s publicly filed documents, including the Company’s Registration Statement on Form 10, its annual report on Form 10-K for the Year ended September 30, 2004, its Current Report on Form 8-K dated April 27, 2005, and its Current Report on Form 8-K dated April 25, 2000.
Ward M. Klein, Energizer’s Chief Executive Officer, and Daniel J. Sescleifer, Energizer’s Executive Vice President and Chief Financial Officer, evaluated Energizer’s disclosure controls and procedures as of March 31, 2005, the end of the Company’s second fiscal quarter of 2005, and determined that such controls and procedures were effective and sufficient to ensure compliance with applicable laws and regulations regarding appropriate disclosure in the Quarterly Report, and that there were no material weaknesses in those disclosure controls and procedures. They have also indicated that there were no significant changes in internal controls or other factors that could significantly affect internal controls subsequent to the date of their most recent evaluation of disclosure controls and procedures, including any corrective actions with regard to significant deficiencies and material weaknesses.
There is no information required to be reported under any items except those indicated below.
The Company 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 the Company’s newQUATTRO 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. Gillette filed a motion for a preliminary injunction in the matter, which was denied by the Court in an order issued January 15, 2004. The Court held that Gillette's patent claims were limited to razors with three blades, and so could not cover the four-bladedQUATTRO razor design. Thereafter, Gillette appealed that decision to the U.S. Court of Appeals for the Federal Circuit. In December, 2003, Gillette amended its original complaint to add allegations thatQUATTRO infringes three additional Gillette patents involving the system’s tray and handle grips. In June, 2004, the Company filed a counterclaim against Gillette alleging that Gillette committed fraud against the Patent Office when it obtained its three blade progressive geometry patent and, therefore, that Gillette’s attempts to enforce the patent violate U.S. antitrust laws. In November, 2004, the Company added another counterclaim against Gillette, alleging breach of contract under a 1989 Agreement that gave the Company's predecessor, Warner Lambert, immunity from suit under the patent at issue. On April 29, 2005, the U.S. Court of Appeals for the Federal Circuit vacated the trial court's decision that Gillette's claims cover only three-bladed razors, and remanded the case back to the trial court for further proceedings. Trial on Gillette’s claims is expected in 2005, with trial on the Company’s counterclaims thereafter.
On December 19, 2003, Gillette filed suit against the Company’s Wilkinson Sword 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. At a trial on December 2, 2004, the German court hearing the matter held that the patent is limited to razors having three blades, and therefore does not cover the Company's four-bladedQUATTRO razor. Gillette announced that it will appeal.
On February 13, 2004, the Company 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. At the time the suit was filed, these three patents covered Gillette’sMach3,Mach3 Turbo andVenus product lines. After the filing of the suit, Gillette introduced a new product,Mach 3 Power, and on July 15, 2004, the Company amended its suit, adding an allegation thatMach 3 Power infringes the Schick patents and seeking a preliminary injunction against the sale ofMach 3 Power. In October of 2004, the Company withdrew its motion for preliminary injunction. The Company has now amended the complaint by dropping two of the patents from the suit. The trial on the remaining patent is expected to take place in the fall of 2005.
In May, 2004, Gillette filed three suits against Wilkinson Sword in Hamburg, Germany seeking preliminary injunctions. The first suit alleges that sale of the Wilkinson SwordIntuition razor in Germany infringes a Gillette patent covering theIntuition shower caddy. The second suit alleges that the sale of the Wilkinson Sword Intuition razor in Germany infringes a Gillette patent covering theIntuition cartridge container. The third suit alleges that the manufacture and sale of the Wilkinson SwordQUATTRO razor in Germany infringes a Gillette patent covering the razor handle. A hearing was held on these three preliminary injunction requests on June 16, 2004 and, when the judge indicated that he was going to deny the injunctions, Gillette withdrew its requests. Gillette filed the same suits against Wilkinson Sword in Düsseldorf, Germany, but did not seek preliminary relief. Those suits are in a preliminary stage and may proceed for a protracted period of time.
The Company and its subsidiaries are parties to a number of other legal proceedings in various jurisdictions arising out of the operations of the Energizer business. Many of these legal matters, including those described above, are in preliminary stages and involve complex issues of law and fact, and may proceed for protracted periods of time. The amount of liability, if any, from these proceedings cannot be determined with certainty. However, based upon present information, Energizer believes that its ultimate liability, if any, arising from pending legal proceedings, asserted legal claims and known potential legal claims which are likely to be asserted, should not be material to Energizer’s financial position, taking into account established accruals for estimated liabilities. These liabilities, however, could be material to results of operations or cash flows for a particular quarter or year.
Issuer Purchases of Energizer Common Stock during the quarter ended March 31, 2005.
| | | | (a) Total Number of Shares Purchased | | | (b) Average Price Paid per Share | | | (c) Total Number of Shares Purchased as Part of Publicly Announced Programs (1 | ) | | (d) Maximum Number of Shares that may yet be purchased under the current Program (1 | ) |
| 1/1/05 to 1/31/05 | | | 1,040,150 | | $ | 48.80 | | | 1,040,150 | | | 5,172,016 | |
| 2/1/05 to 2/28/05 | | | - | | | - | | | - | | | 5,172,016 | |
| 3/1/05 to 3/31/05 | | | - | | | - | | | - | | | 5,172,016 | |
| Quarter 2 of FY 2005 | | | 1,040,150 | | $ | 48.80 | | | 1,040,150 | | | 5,172,016 | |
(1) On August 30, 2004, the Company announced Board approval of a new authorization for the Company to acquire up to 10,000,000 shares of its common stock, which replaced in its entirety a previous authorization dated January 26, 2004. No additional purchases were made by the Company after March 31, 2005 and up to the date of this filing.
The following exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K) are filed with this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ENERGIZER HOLDINGS, INC.
Registrant
By:
Daniel J. Sescleifer
Executive Vice President and
Chief Financial Officer
Date: May 4, 2005
