UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 31, 2001
Commission File No. 001-15401
ENERGIZER HOLDINGS, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1863181
------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
533 MARYVILLE UNIVERSITY DRIVE, ST. LOUIS MISSOURI 63141
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 985-2000
------------------------------------------------------------
(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
----
Number of shares of Energizer Holdings, Inc. common stock, $.01 par value,
outstanding as of the close of business on February 1, 2002.
91,371,811
-------------------------
PART I - FINANCIAL INFORMATION
ENERGIZER HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(CONDENSED)
(DOLLARS IN MILLIONS--UNAUDITED)
QUARTER ENDED DECEMBER 31,
2001 2000
---- ----
Net Sales . . . . . . . . . . . . . . . . . $567.7 $559.3
Cost of products sold . . . . . . . . . . . 305.0 311.6
Selling, general and administrative expense 81.4 83.2
Advertising and promotion expense . . . . . 46.0 49.3
Research and development expense. . . . . . 9.2 11.5
Provisions for restructuring. . . . . . . . 1.4 -
Interest expense. . . . . . . . . . . . . . 6.2 9.9
Other financing items, net. . . . . . . . . 1.3 1.1
------- -------
Earnings before Income Taxes. . . . . . . . 117.2 92.7
Income Taxes. . . . . . . . . . . . . . . . (46.8) (38.5)
------- -------
Net Earnings. . . . . . . . . . . . . . . . $ 70.4 $ 54.2
======= =======
Basic earnings per share. . . . . . . . . . $ 0.77 $ 0.57
Diluted earnings per share. . . . . . . . . $ 0.76 $ 0.57
<FN>
See accompanying Notes to Condensed Financial Statements
ENERGIZER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS--UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
2001 2001
---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 50.6 $ 23.0
Trade receivables, less allowance for doubtful
accounts of $11.3 and $11.8, respectively 256.6 189.1
Inventories
Raw materials and supplies 44.3 47.0
Work in process 76.1 91.4
Finished products 180.8 222.9
--------- ---------
Total Inventory 301.2 361.3
Other current assets 276.5 209.9
--------- ---------
Total Current Assets 884.9 783.3
--------- ---------
Property at Cost 1,027.2 1,030.0
Accumulated depreciation 562.8 553.9
--------- ---------
464.4 476.1
Other Assets 239.2 238.2
--------- ---------
Total $1,588.5 $1,497.6
========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Notes payable $ 144.1 $ 110.3
Accounts payable 81.6 109.2
Other current liabilities 353.7 275.7
--------- ---------
Total Current Liabilities 579.4 495.2
Long-Term Debt 175.0 225.0
Other Liabilities 170.4 169.5
Shareholders Equity
Common Stock 1.0 1.0
Additional Paid in Capital 784.2 784.1
Retained Earnings 87.8 17.5
Treasury Stock (85.9) (79.6)
Accumulated Other Comprehensive Income (123.4) (115.1)
--------- ---------
Total Shareholders Equity 663.7 607.9
--------- ---------
Total $1,588.5 $1,497.6
========= =========
<FN>
See accompanying Notes to Condensed Financial Statements
ENERGIZER HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED)
(DOLLARS IN MILLIONS - UNAUDITED)
QUARTER ENDED DECEMBER 31,
2001 2000
---- ----
CASH FLOW FROM OPERATIONS
Net earnings $ 70.4 $ 54.2
Non-cash items included in income 17.0 23.0
Sale of accounts receivable, net (36.2) 50.0
Changes in assets and liabilities used in operations 2.2 22.9
Other, net 2.3 0.1
------- --------
Net cash flow from operations 55.7 150.2
CASH FLOW FROM INVESTING ACTIVITIES
Property additions (9.2) (17.2)
Proceeds from sale of property 0.6 5.3
Other, net 0.7 2.1
------- --------
Net cash used by investing activities (7.9) (9.8)
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on long-term debt (including
current maturities) (50.0) (95.0)
Net increase in notes payable 36.2 8.4
Treasury stock purchases (6.3) (41.9)
Proceeds from issuance of common stock 0.1 -
------- --------
Net cash used by financing activities (20.0) (128.5)
------- --------
Effect of Exchange Rate Changes on Cash (0.2) 0.4
------- --------
Net Increase in Cash and Cash Equivalents 27.6 12.3
Cash and Cash Equivalents, Beginning of Period 23.0 16.0
------- --------
Cash and Cash Equivalents, End of Period $ 50.6 $ 28.3
======= ========
<FN>
See accompanying Notes to Condensed Financial Statements
ENERGIZER HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(DOLLARS IN MILLIONS - UNAUDITED)
NOTE 1 - The accompanying unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for any quarter are not necessarily indicative of the results
for any other quarter or for the full year. These statements should be read in
conjunction with the financial statements and notes thereto for Energizer
Holdings, Inc. (Energizer) for the year ended September 30, 2001.
NOTE 2 - On October 1, 2001, Energizer adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Intangible Assets" (SFAS 142). SFAS 142
eliminates the amortization of goodwill and instead requires goodwill be tested
for impairment at least annually. Intangible assets deemed to have an
indefinite life under SFAS 142 are no longer amortized, but instead reviewed at
least annually for impairment. Intangible assets with finite lives are
amortized over the useful life.
As businesses have been acquired in the past, Energizer has allocated goodwill
and other intangible assets to reporting units within each operating segment.
Energizer's intangible assets are comprised of trademarks related to the
Energizer name, which are deemed indefinite-lived intangibles. Thus beginning
in fiscal 2002, these trademarks are no longer amortized.
As part of the implementation of SFAS 142, Energizer is required to complete a
transitional impairment test of goodwill and other intangible assets. Energizer
completed these transitional tests in the current quarter, which resulted in no
impairment. The fair value of the reporting unit was estimated using the
discounted cash flow method. Prospectively, Energizer will test its goodwill
and intangible assets for impairment as a part of its annual business planning
cycle in the fourth quarter of each fiscal year.
The following table represents the carrying amount of goodwill and trademarks by
segment for December 31, 2001:
South &
North Central
America Asia Europe America Total
-------- ----- ------ ------- -------
Goodwill . . . . . . . . . . . . 24.7 0.9 8.4 3.5 37.5
======== ===== ====== ======= =======
Trademarks - Gross . . . . . . . 413.8 23.0 - - 436.8
Trademarks - Accum. amortization (354.4) (9.4) - - (363.8)
-------- ----- ------ ------- -------
Trademarks - Net carrying amount 59.4 13.6 - - 73.0
======== ===== ====== ======= =======
As required by SFAS 142, the results for periods prior to fiscal 2002 were not
restated in the accompanying consolidated statement of earnings. A
reconciliation between net earnings and earnings per share reported by Energizer
and net earnings and earnings per share as adjusted to reflect the impact of
SFAS 142 is provided below.
Quarter ended Year ended
------------- -----------
December 31, March 31, June 30, September 30, September 30,
2000 2001 2001 2001 2001
---- ----- ----- ----- ----
Net earnings/(loss):
As reported $54.2 $ 5.6 $15.7 $(114.5) $(39.0)
Goodwill amortization, net of tax 3.0 3.1 3.0 3.0 12.1
Intangible asset amortization,
net of tax 0.8 0.7 0.8 0.7 3.0
----- ----- ----- -------- -------
Adjusted net earnings/(loss) $58.0 $ 9.4 $19.5 $(110.8) $(23.9)
===== ===== ===== ======== =======
Quarter ended Year ended
------------- -----------
December 31, March 31, June 30, September 30, September 30,
2000 2001 2001 2001 2001
---- ----- ----- ----- ----
Basic and diluted earnings/(loss)
per share: (1)
As reported $ 0.57 $ 0.06 $ 0.17 $(1.25) $(0.42)
Goodwill amortization, net of tax 0.03 0.03 0.03 0.03 0.13
Intangible asset amortization,
net of tax 0.01 0.01 0.01 0.01 0.03
----- ----- ----- -------- -------
Adjusted net earnings/(loss) $ 0.61 $ 0.10 $ 0.21 $(1.21) $(0.26)
===== ===== ===== ======== =======
Basic shares 94.7 92.2 91.7 91.7 92.6
Diluted shares 95.9 94.1 93.5 92.7 94.1
<FN>
(1) For the quarter ending September 30, 2001 and for the fiscal year 2001, the
potentially dilutive securities were not included in the dilutive earnings
per share calculation due to their anti-dilutive effect.
NOTE 3 - The Emerging Issues Task Force (EITF) issued EITF 00-10, "Accounting
for Shipping and Handling Fees and Costs," which provides guidance on earnings
statement classification of amounts billed to customers for shipping and
handling. Energizer adopted EITF 00-10 in its fourth quarter of fiscal 2001.
Reclassification was necessary from net sales to cost of products sold of $10.5
for the quarter ended December 31, 2000. In addition, warehousing costs in
selling, general and administrative expense of $9.1 for the quarter ended
December 31, 2000 were reclassified to cost of products sold. There was no
impact to net earnings.
The EITF also issued EITF 00-14 and 00-25. EITF 00-14, "Accounting for Certain
Sales Incentives," provides guidance on accounting for discounts, coupons,
rebates and free product. EITF 00-25, "Vendor Income Statement Characterization
of Consideration from a Vendor to a Retailer," provides guidance on accounting
for considerations other than those directly addressed in EITF 00-14. Energizer
adopted EITF 00-14 and 00-25 in its fourth quarter of fiscal 2001.
Reclassification of $9.9 was necessary from advertising and promotion expense to
net sales for the quarter ended December 31, 2000. There was no impact to net
earnings.
NOTE 4 - Energizer operations are managed via four geographic segments. In the
past, each segment has reported profit from its intersegment sales in its
own segment's results. Changes in intersegment profit captured in inventory not
yet sold to outside customers were recorded in general corporate expenses. Due
to increased levels of intersegment sales related to production consolidation
and in light of Energizer's current management objectives and structure,
Energizer believes the exclusion of intersegment profit in segment results is a
more appropriate view of its operating segments.
Beginning in fiscal 2002, Energizer will report segment results reflecting all
profit derived from each outside customer sale in the region in which the
customer is located. Profit on sales to other segments will no longer be
reported in the selling region. As a result, segments with manufacturing
capacity that are net exporters to other segments will show lower segment profit
than in the past. Segments that are net importers of Energizer manufactured
product will show higher segment profit than in the past.
This new structure is the basis for the Company's reportable operating segment
information disclosed below. Segment performance is evaluated based on
operating profit, exclusive of general corporate expenses, research and
development expenses, restructuring charges and amortization of goodwill and
intangibles. Financial items, such as interest income and expense, are managed
on a global basis at the corporate level.
FOR THE QUARTER ENDED DECEMBER 31,
----------------------------------
2001 2000
------ ------
NET SALES
North America . . . . . . $351.9 $324.7
Asia Pacific. . . . . . . 83.0 100.2
Europe. . . . . . . . . . 95.1 89.3
South & Central America . 37.7 45.1
------ ------
Total Net Sales $567.7 $559.3
====== ======
FOR THE QUARTER ENDED DECEMBER 31,
----------------------------------
2001 2000
------- -------
PROFITABILITY
North America. . . . . . . . . . . . . . . . . . . . $117.7 $ 89.0
Asia Pacific . . . . . . . . . . . . . . . . . . . . 21.6 24.8
Europe . . . . . . . . . . . . . . . . . . . . . . . 8.2 4.7
South and Central America. . . . . . . . . . . . . . 5.6 8.7
------- -------
TOTAL SEGMENT PROFITABILITY . . . . . . . . . . . $153.1 $127.2
General corporate expenses . . . . . . . . . . . . . (15.2) (6.4)
Research and development expense . . . . . . . . . . (9.2) (11.5)
------- -------
Operating profit before unusual items
and amortization . . . . . . . . . . . . . . . . 128.7 109.3
Provisions for restructuring and other related costs (4.0) -
Amortization of intangibles. . . . . . . . . . . . . - (5.6)
Interest and other financial items . . . . . . . . . (7.5) (11.0)
------- -------
Total earnings before income taxes. . . . . . . . $117.2 $ 92.7
======= =======
FOR THE QUARTER ENDED DECEMBER 31,
----------------------------------
2001 2000
NET SALES BY PRODUCT LINE ------- -------
Alkaline Batteries . . $ 420.6 $395.3
Carbon Zinc Batteries. 66.6 83.6
Lighting Products. . . 32.2 32.2
Miniature Batteries. . 16.6 16.6
Other. . . . . . . . . 31.7 31.6
------- -------
Total Net Sales $ 567.7 $559.3
======= ======
NOTE 5 - Basic earnings per share is based on the average number of common
shares outstanding during the period. Diluted earnings per share is based on
the average number of shares used for the basic earnings per share calculation,
adjusted for the dilutive effect of stock options and restricted stock
equivalents.
The following table sets forth the computation of basic and diluted earnings per
share for the quarter ended December 31, 2001 and 2000, respectively.
Quarter Ended
December 31,
------------
2001 2000
---- -----
Numerator:
Numerator for basic and dilutive earnings per share -
Net earnings $70.4 $54.2
Denominator:
Denominator for basic earnings per share -
Weighted average shares 91.7 94.7
Effect of dilutive securities
Stock Options 0.1 0.7
Restricted Stock Equivalents 0.6 0.5
----- -----
0.7 1.2
Denominator for dilutive earnings per share -
Weighted-average shares and assumed conversions 92.4 95.9
===== =====
Basic earnings per share $0.77 $0.57
Diluted earnings per share $0.76 $0.57
NOTE 6 - As part of restructuring plans announced in the fourth quarter of
fiscal 2001, Energizer ceased production and terminated substantially all of its
employees at its Mexican carbon zinc production facility in the current quarter,
as well as continuing execution of other restructuring actions. Energizer
recorded provisions for restructuring of $1.4 pre-tax, as well as related costs
for accelerated deprecation and inventory obsolescence of $2.6 pre-tax recorded
in cost of products sold in the current quarter. Total provisions for
restructuring and related costs were $4.0 pre-tax, or $2.9 after-tax, in the
current quarter. As of December 31, 2001, 505 of a total of 570 employees have
been terminated in connection with these plans, with 377 terminated in the
current quarter. Activities impacting the restructuring reserve, which are
recorded in other current liabilities on the Consolidated Balance Sheet, during
the quarter ended December 31, 2001, are presented in the following table:
Beginning Provision/ Ending
Balance (Reversals) Activity Balance
------- ----------- --------- -------
2001 Plan
- --------------------
Termination benefits 5.3 0.9 (4.7) 1.5
Other cash costs . . 3.9 0.5 (1.6) 2.8
------- ----------- --------- -------
Total. . . . . . . . 9.2 1.4 (6.3) 4.3
======= =========== ========= =======
NOTE 7 - The components of total comprehensive income for the quarter ended
December 31, 2001 and 2000, respectively, are shown in the following table:
Quarter Ended December 31,
2001 2000
------ ------
Net earnings . . . . . . . . . . . . . . . . . . . $70.4 $54.2
Other comprehensive income items:
- - Foreign currency translation adjustments . . . . (7.7) 2.3
- - Foreign currency translation adjustments
related to elimination of one month reporting lag - (4.4)
- - Minimum pension liability adjustment,
net of taxes of $.3 . . . . . . . . . . . . . . . (0.3) -
------ ------
Total comprehensive income . . . . . . . . . . . . $62.4 $52.1
====== ======
NOTE 8 - Energizer has an agreement to sell, on an ongoing basis, a pool of
domestic trade accounts receivable to a wholly owned bankruptcy-remote
subsidiary of Energizer. The subsidiary qualifies as a Special Purpose Entity
(SPE), under SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." The SPE's sole purpose is the
acquisition of receivables from Energizer and the sale of its interests in the
receivables to a multi-seller receivables securitization company. The SPE is
not consolidated for financial reporting purposes. Energizer's investment in
the SPE is classified as Other Current Assets on the Consolidated Balance Sheet
as disclosed in Note 9 below.
December 31, 2001 September 30, 2001
----------------- ------------------
Total outstanding accounts receivable sold to SPE. . . . . . 221.9 184.1
Cash received by SPE from sale of receivables to a third party 50.0 86.2
Subordinated retained interest . . . . . . . . . . . . . . . . 171.9 97.9
Energizer's investment in SPE. . . . . . . . . . . . . . . . . 171.9 97.9
NOTE 9- Other Current Assets consist of the following:
December 31, 2001 September 30, 2001
------------------ -------------------
Investment in SPE. . . . . . $ 171.9 $ 97.9
Miscellaneous receivables. . 24.4 25.3
Deferred income tax benefits 44.8 46.3
Prepaid expenses . . . . . . 35.0 39.8
Other current assets . . . . 0.4 0.6
------------------ -------------------
$ 276.5 $ 209.9
================== ===================
NOTE 10- Other Assets consist of the following:
December 31, 2001 September 30, 2001
------------------ -------------------
Goodwill. . . . . . . . . . . . . $ 37.5 $ 38.1
Other intangible assets . . . . . 73.0 72.7
Pension asset . . . . . . . . . . 108.9 106.2
Other assets and deferred charges 19.8 21.2
------------------ -------------------
$ 239.2 $ 238.2
================== ===================
NOTE 11- Other Liabilities consist of the following:
December 31, 2001 September 30, 2001
------------------ -------------------
Postretirement benefits liability $ 92.0 $ 91.7
Other non-current liabilities . . 78.4 77.8
------------------ -------------------
$ 170.4 $ 169.5
================== ===================
NOTE 12- In September 2000, Energizer's Board of Directors approved a share
repurchase plan authorizing the repurchase of up to 5 million shares of
Energizer's common stock. As of December 31, 2001, Energizer has purchased
approximately 4.2 million shares under the authorization.
NOTE 13- At December 31, 2001, Energizer had net accounts receivable from Kmart
Corporation of $20.7. On January 23, 2002, Kmart filed for Chapter 11
bankruptcy protection. As of the filing date of this document, it is not
possible to determine what amount, if any, of the accounts receivable will be
collected from Kmart. Failure to collect substantially all of the Kmart net
accounts receivable would result in additional charges in one or more future
quarters.
NOTE 14- The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" in 2001. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. Energizer is required to adopt SFAS 143 no
later than the first quarter of fiscal 2003, although early adoption is allowed.
Energizer determined that the implementation of SFAS 143 will not have a
material effect on its financial statements.
The FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets," which provides guidance on the accounting for the impairment
or disposal of long-lived assets. Energizer is required to adopt SFAS 144 no
later than the first quarter of fiscal 2003, although early adoption is allowed.
Energizer is currently evaluating the impact of SFAS 144 on its financial
statements.
ENERGIZER HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
(DOLLARS IN MILLIONS)
HIGHLIGHTS / OPERATING RESULTS
Net earnings for the quarter ended December 31, 2001 were $70.4, or $.77
per basic share and $.76 per diluted share compared to $54.2, or $.57 per share
for the quarter ended December 31, 2000. Included in the current quarter net
earnings are restructuring provisions and related costs of $2.9, after taxes, or
$.03 per share. The prior year quarter includes amortization expense that would
not have been amortized under SFAS 142, of $3.8 after taxes, or $.04 per share.
Due to the adoption of SFAS 142 at the beginning of fiscal 2002 as described in
Note 2 to the Condensed Financial Statements, amortization expense is
discontinued beginning in fiscal 2002. Adjusting for these items in both
quarters, net earnings would have been $73.3, or $.79 per diluted share in the
current quarter compared to $58.0, or $.61 per share last year.
Net sales for the quarter ended December 31, 2001 increased $8.4 or 1.5%,
with increases in North America and Europe, partially offset by declines in the
Asia Pacific and South and Central American regions. See the following section
for comments on sales changes by segment.
Gross margin for the quarter increased $15.0 or 6% reflecting lower product
cost and higher sales. Gross margin percentage improved 2.0 percentage points
to 46.3%.
Selling, general and administrative expenses decreased $1.8 or 2% in the
quarter due to the absence of amortization expense and lower overhead costs in
North America, partially offset by higher general corporate expenses. Selling,
general and administrative expenses for the quarter were 14.3% of sales compared
to 14.9% last year.
Advertising and promotion expense declined $3.3 or 7% in the quarter on a
decrease in North America, partially offset by increases in Europe. Advertising
and promotion as a percent of sales was 8.1% in the current quarter, compared to
8.8% in the same period a year ago.
Segment Results
Energizer Holdings, Inc. (Energizer) operations are managed via four
geographic segments. In the past, each segment has reported profit from its
intersegment sales in its own segment results. Changes in intersegment profit
captured in inventory and not yet sold to outside customers were recorded in
general corporate expenses. Due to increased levels of intersegment sales
related to production consolidation and in light of the Company's current
management objectives and structure, Energizer believes the exclusion of
intersegment profit in segment results is a more appropriate view of its
operating segments.
Beginning in fiscal 2002, Energizer will report segment results reflecting
all profit derived from each outside customer sale in the region in which the
customer is located. Profit on sales to other segments will no longer be
reported in the selling region. As a result, segments with manufacturing
capacity that are net exporters to other segments will show lower segment profit
than in the past. Segments that are net importers of Energizer manufactured
product will show higher segment profit than in the past.
This structure is the basis for the Company's reportable operating segment
information, as included in the tables in Note 4 to the Condensed Financial
Statements for the quarter ended December 31, 2001 and 2000.
North America
Net sales for North America were $351.9 for the quarter ended December 31,
2001, an increase of $27.2 or 8%. An 18% increase in alkaline volume was
partially offset by unfavorable pricing and product mix reflecting intense
competition and high promotional activity.
Energizer's share of primary batteries in the U.S., as measured by A. C.
Nielsen, was 32.7 for the 13-week period ended December 29, 2001, down 1.6
percentage points compared to the same quarter last year. A. C. Nielsen reported
the overall battery category sales value declined 3% in the quarter while units
sold increased 3%, reflecting increased promotional activity. Energizer uses A.
C. Nielsen as its primary external, independent source for market share data.
Although A. C. Nielsen captures data from less than 50% of the total market,
analysis of other available data indicates the current market share from A. C.
Nielsen is a reasonable approximation of Energizer's overall market position.
As of December 31, 2001, certain Energizer retail customers carried
inventory of Energizer product in excess of seasonally normal levels. As these
customers reduce inventory levels in the future, Energizer's sales volume will
trail those customers' retail sales volume. Energizer does not believe the
aggregate level of excess retail inventory is materially different from levels
at December 31, 2000.
Gross margin increased $18.7 in the quarter, on improved product cost
reflecting lower material and other variable costs and improved plant operating
levels. Gross margin from higher sales volume was virtually offset by lower
pricing and product mix.
Segment profit increased $28.7 or 32% in the quarter on higher gross margin
and lower advertising and overhead expenses. Favorable costs reflect the impact
of restructuring actions that began in the fourth quarter of fiscal 2001.
Asia Pacific
Net sales for Asia Pacific were $83.0 for the quarter ended December 31,
2001, a decrease of $17.2, or 17%. Absent currency impacts of $4.0, sales
declined $13.2, or 13% on carbon zinc and alkaline volume declines of 21% and
11%, respectively, as a number of key markets continue to experience unfavorable
economic conditions.
Segment profit was $21.6 for the quarter, down $3.2, or 13% as lower sales
were partially offset by lower product cost.
Europe
Net sales for Europe were $95.1 for the quarter ended December 31, 2001, an
increase of $5.8, or 7%. Absent favorable currency impacts of $3.5, sales
increased $2.3, or 3% on higher alkaline volume and improved pricing and product
mix, partially offset by lower carbon zinc volume.
Segment results improved $3.5, or 75%, for the quarter on higher sales and
lower product cost, partially offset by higher advertising and promotion
expense.
South and Central America
Net sales for South and Central America for the current quarter were $37.7,
a decrease of $7.4, or 16% as alkaline and carbon zinc volumes declined by 14%
and 16%, respectively. Lower sales in Argentina accounted for about 80% of the
decline due to deliberate actions to reduce sales and accounts receivable in
anticipation of the currency devaluation.
Segment profit decreased $3.1, or 36%, with currency devaluation accounting
for $1.9 of the decline. Excluding the impact of currency, segment profit
declined $1.2 on lower sales, partially offset by lower product cost. Argentina
accounted for the entire decline in segment profit.
Future sales and segment profit for the South and Central American region
will be significantly impacted by economic and market conditions in Argentina.
Argentina accounted for approximately 30% of South and Central America's net
sales for the fiscal year ended September 30, 2001.
OTHER COSTS AND EXPENSES
GENERAL CORPORATE EXPENSES
Corporate expenses increased $8.8 for the quarter ended December 31, 2001,
reflecting higher compensation costs related to company performance and stock
price and lower royalty and pension income, partially offset by lower management
costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expense decreased $2.3 million in the quarter as
Energizer focused on new and improved products for retail applications and
reduced spending on products designed for industrial applications.
RESTRUCTURING ACTIVITY
As part of the restructuring plans announced in the fourth quarter of
fiscal 2001, Energizer recorded provisions for restructuring of $1.4 pre-tax, as
well as related costs for accelerated depreciation and inventory obsolescence of
$2.6 pre-tax in the current quarter, which are reflected in cost of products
sold. Total provisions for restructuring and related costs were $4.0 pre-tax,
$2.9 after-tax and $.03 per share in the current quarter. Activities impacting
the restructuring reserve during the quarter ended December 31, 2001 are
presented in Note 6 to the Condensed Financial Statements.
Goodwill and Intangible Amortization
Energizer adopted SFAS No. 142, "Goodwill and Other Intangible Assets" as
of October 1, 2001. As a result, Energizer no longer amortizes its goodwill and
intangible assets, which consist of tradenames. See Note 2 to the Condensed
Financial Statements for further discussion.
Interest Expense and Other Financing Costs
Interest expense decreased $3.7 for the quarter reflecting lower average
borrowings at lower average interest rates. Other financing costs increased $.2
for the quarter as unfavorable net currency exchange, primarily in Argentina,
was nearly offset by lower discounts on the sale of account receivable under a
financing arrangement.
Income Taxes
Income taxes, which include federal, state and foreign taxes, were 39.5%
for the current quarter, compared to a tax rate of 41.5% for the same period
last year. The improvement in the tax rate is primarily due to the absence of
the unfavorable impact of goodwill amortization in the current quarter.
FINANCIAL CONDITION
Cash flow from operations was $55.7 for the quarter ended December 31, 2001
compared to $150.2 of cash flow from operations for the same period in fiscal
2001. The decrease in cash flow from operations was primarily due to reductions
in accounts receivable sold under a financing arrangement. Capital expenditures
totaled $9.2 and $17.2 for the quarter ended December 31, 2001 and 2000,
respectively. Energizer purchased 354,500 shares of treasury stock in the
quarter ended December 31, 2001 for $6.3.
Working capital was $305.5 at December 31, 2001 compared to $288.1 at
September 30, 2001, primarily reflecting seasonal increases. Energizer's total
debt decreased from $335.3 at September 30, 2001 to $319.1 at December 31, 2001
as the excess cash generated from operations was used to pay down long-term
debt.
Energizer 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 Energizer's credit
facilities, although no guarantee can be given in this regard.
MARKET RISK
Energizer has interest rate risk with respect to interest expense on
variable rate debt. A hypothetical 10% adverse change in all interest rates
would have had an unfavorable impact of $.6 on Energizer's net earnings and cash
flows based upon current debt levels.
As of December 31, 2001, Energizer's Argentine subsidiary had $4.0 of U.S.
dollar based borrowings and $3.7 of U.S. dollar intercompany accounts payable.
Such liabilities generated an exchange loss of $1.5 related to the U.S. dollar
borrowings, which is reflected in other financing items, and an exchange loss of
$1.4 related to accounts payable, which is reflected in South and Central
America's segment profit. These exchange losses were computed at a 1.60 peso to
dollar translation rate as of December 31, 2001. Subsequent to December 31,
2001, Energizer contributed capital to its Argentine subsidiary sufficient to
repay all U.S. dollar liabilities, thus mitigating exposure to further currency
exchange losses.
At December 31, 2001, Energizer had net accounts receivable from Kmart
Corporation of $20.7. On January 23, 2002, Kmart filed for Chapter 11 bankruptcy
protection. As of the filing date of this document, it is not possible to
determine what amount, if any, of the accounts receivable will be collected from
Kmart. Failure to collect substantially all of the Kmart net accounts receivable
would result in additional charges in one or more future quarters.
Recently Issued Accounting Standards
See discussion in Note 14 to the Condensed Financial Statements.
Forward-Looking Statements
Statements in this document that are not historical, particularly
statements regarding the validity of market share data reports, the impact of
market and economic conditions in Argentina, the impact of inventory levels of
retail customers, Energizer's continuing ability to meet liquidity requirements,
and the impact of changes in interest rates and currency values, may be
considered forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Energizer cautions readers not to
place undue reliance on any forward-looking statements, which speak only as of
the date made.
Energizer advises readers that various risks and uncertainties could affect
its financial performance and could cause Energizer's actual results for future
periods to differ materially from those anticipated or projected. Market share
data from a single source may under or overestimate Energizer's total market
share in the U.S. Retailer inventory reductions may significantly reduce
Energizer sales volumes for future fiscal quarters. Energizer's ability to
maintain compliance with its debt covenants, as well as changes in its operating
cash flows, could limit its ability to meet its liquidity requirements. The
impact of adverse interest rate changes could be more significant than
anticipated, particularly if general economic conditions in the countries in
which Energizer operates deteriorate as well. Foreign currency fluctuations
could also have a significant detrimental impact on Energizer's consolidated
results. Additional risks and uncertainties include those detailed from time to
time in Energizer's publicly filed documents, including Energizer's Registration
Statement on Form 10, as amended, its Annual Report on Form 10-K for the Year
ended September 30, 2001, and its Current Report on Form 8-K dated April 25,
2000.
PART II - OTHER INFORMATION
------------------
There is no information required to be reported under any items except those
indicated below.
Item 4 -- Submission of Matter to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on January 28, 2002, for the
purpose of electing three directors to serve three-year terms ending at the
Annual Meeting held in 2005.
The number of votes cast, and the number of shares voting for or against each
candidate and the number of votes cast for the other matters submitted for
approval, as well as the number of abstentions with respect thereto, is as
follows:
VOTES VOTES
FOR WITHHELD
William H. Danforth 75,423,642 1,141,815
Richard A. Liddy. . 75,291,772 1,273,685
Joe R. Micheletto . 75,516,631 1,048,826
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:/s/ Daniel J. Sescleifer
Daniel J. Sescleifer
Executive Vice President and Chief Financial Officer
Date: February 11, 2002