Energizer 2002 Annual Report Download - page 15

General Corporate and Other Expenses
General corporate and other expenses increased $28.5 in 2002
compared to 2001 primarily due to higher compensation costs related
to company earnings and stock price. Energizer recorded expense of
$8.7 in 2002 to increase compensation liabilities tied to Energizer stock
price as the stock price increased, compared to recorded income of
$3.0 on such liabilities in 2001 as the stock price declined. In May 2002,
Energizer entered into an option arrangement with a financial institution
to substantially mitigate additional charges or income associated with
such liabilities going forward. See further discussion in Note 18 to the
Consolidated Financial Statements.
General corporate and other expenses decreased $8.4 in 2001 com-
pared to 2000 due to lower incentive and stock compensation costs
and higher pension income, partially offset by higher management
costs, including the incremental costs of operating as a stand-alone
company for a full year, compared to six months in fiscal 2000.
As a percent of sales, general corporate and other expenses were
3.2% in 2002, 1.6% in 2001 and 1.8% in 2000.
Research and Development Expense
Research and development expense was $37.1 in 2002, $46.4 in
2001 and $49.9 in 2000. In 2002, Energizer focused its research on
new and improved products for retail applications and reduced spending
on products designed for industrial applications. As a percent of sales,
research and development expense was 2.1% in 2002, 2.7% in 2001
and 2.6% in 2000.
Restructuring Charges
In March 2002, Energizer adopted a restructuring plan to reorganize cer-
tain European selling, management, administrative and packaging activi-
ties. The total cost of this plan was $6.7 before taxes, of which $4.5, or
$2.9 after-tax, was recorded in the second quarter of fiscal 2002 and $2.2,
before and after-tax, was recorded during the fourth quarter of fiscal 2002.
These restructuring charges consist of $5.2 for cash severance payments,
$1.0 of other cash charges and $.5 in enhanced pension benefits. As of
September 30, 2002, 10 of a total of 64 employees have been terminated
in connection with the 2002 plans. The plan is expected to be complete by
the end of fiscal 2003. When the program is fully implemented, the annual
pre-tax savings is estimated to be $4.5 of which $2.8 should be realized in
fiscal 2003.
Because of a continued migration of consumer demand from carbon zinc
to alkaline batteries, Energizer performed a comprehensive study of its
carbon zinc manufacturing plant locations and capacities in fiscal 2001.
Energizer also reviewed its worldwide operations in light of competitive
market conditions and available technologies and techniques. During
2001, Energizer adopted restructuring plans to eliminate carbon zinc
capacity, and to reduce and realign certain selling, production, research
and administrative functions. The total cost associated with this plan was
$33.4 before taxes, of which $29.8, or $19.4 after-tax, was recorded in the
fourth quarter of fiscal 2001. In the first quarter of fiscal 2002, Energizer
ceased production and terminated substantially all of its employees at its
Mexican carbon zinc production facility. Energizer also continued execution
of other previously announced restructuring actions. Energizer recorded
provisions for restructuring of $1.4, or $.9 after-tax, as well as related costs
for accelerated depreciation and inventory obsolescence of $2.6, or $2.0
after-tax, which was recorded in cost of products sold in the first quarter of
fiscal 2002. In addition, Energizer recorded net reversals of previously
recorded excess restructuring charges of $.4, or $.2 after-tax, during the
fourth quarter of 2002.
The 2001 restructuring plans improved Energizer’s operating efficiency,
downsized and centralized corporate functions, and decreased costs.
One carbon zinc production facility in Mexico was closed. A total of 539
employees were terminated, consisting of 340 production and 199 sales,
research and administrative employees, primarily in the United States and
South and Central America.
The restructuring charges for the 2001 plan consist of non-cash fixed
asset impairment charges of $10.6 for the closed carbon zinc plant and
production equipment, enhanced pension benefits for certain terminated
U.S. employees of $8.3, cash severance payments of $7.6, other cash
charges of $4.2, and $2.6 of other related costs for accelerated deprecia-
tion and inventory obsolescence recorded in cost of products sold.
Prior to fiscal 2000, Energizer adopted restructuring plans. All activities
associated with such plans, except disposition of certain assets held for
disposal had been completed as of September 30, 2000.
The carrying value of assets held for disposal under restructuring plans
was $1.3 at September 30, 2002.
Energizer expects to fund the remaining costs of these restructuring
actions with funds generated from operations.
Energizer will continue 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.
See Note 5 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
2002, 2001 and 2000 including any adjustments to the original charges.
ENR 2002 Annual Report Page 13