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Energizer Holdings, Inc. 2003 ANNUAL REPORT

Table of contents

  • Page 1
    Energizer Holdings, Inc. 2 0 0 3 A N N U A L R E P O R T

  • Page 2
    ...ON THE NEW YORK STOCK EXCHANGE UNDER THE ENR SYMBOL. ENERGIZER IS ONE OF THE WORLD'S L ARGEST MANUFACTURERS OF PRIMARY BATTERIES AND FL ASHLIGHTS AND A GLOBAL LEADER IN THE DYNAMIC BUSINESS OF PROVIDING PORTABLE POWER. IN ADDITION, ENERGIZER IS THE PARENT COMPANY OF SCHICKWILKINSON SWORD (SWS), THE...

  • Page 3
    ...T Y T O F O R T I F Y O U R P O S I T I O N I N A T O U G H, T U R B U L E N T BATTERY MARKET. ABOUT OUR AND BRANDS, PRODUCTS NEW OPPORTUNITIES FOR GROWTH. © 2003 Energizer, Eveready, Energizer Bunny Design, Schick, Wilkinson Sword and other marks are trademarks of Eveready Battery Company, Inc.

  • Page 4
    ...2003, pro forma) SWS ACQUISITION On March 28, 2003, we acquired the worldwide Schick-Wilkinson Sword (SWS) business from Pfizer Inc. for $930 million, plus acquisition costs and certain adjustments. We financed the purchase using available credit facilities and cash, plus a $550 million bridge loan...

  • Page 5
    ...to continue looking at ourselves as a small company, one that has to watch its pennies and focus squarely on its two main businesses - batteries and razors. We're not trying to hit home runs ...we would rather hit singles and win the game over time. We are cash-flow driven and this fundamental focus...

  • Page 6
    Page 4 ENR 2003 ANNUAL REPORT BY OPPORTU NITIES IN AND BATTERI ES L IGHTING PRODUCTS.

  • Page 7
    ... patented titanium technology and advanced cell construction, delivers exceptional power for today's most demanding devices. Energizer® e2® Photo Lithium offers a complete line of batteries to power both digital and flash cameras, including the world's longest-lasting AA battery. The lithium AA...

  • Page 8
    Page 6 ENR 2003 ANNUAL REPORT NEW ACQUISITION, SCHICK-WILKINSON SWORD. BY OUR

  • Page 9
    ... In late March 2003, Energizer Holdings acquired the combined SWS shaving products business comprised of Schick, founded in 1921, and Wilkinson Sword, established in 1772. SWS is headquartered in Milford, Connecticut with a worldwide workforce of approximately 4,000 employees. Energizer and SWS are...

  • Page 10
    ... at Energizer's corporate headquarters, as listed above, or by retrieving this information from the company's website, www.energizer.com. Code of Ethics The Company has adopted a code of ethics that is applicable to all of its directors and employees, including its Chief Executive Officer, Executive...

  • Page 11
    ENR 2003 ANNUAL REPORT Page 9 CONTENTS CONDITION | 1 0 M A N A G E M E N T ' S D I S C U S S I O N A N D A N A LY S I S O F R E S U LT S O F O P E R AT I O N S A N D F I N A N C I A L | 21 RESPONSIBILITY FOR 2 0 S U M M A R Y S E L E C T E D H I S T O R I C A L F I N A N C I A L I N F O R M AT I...

  • Page 12
    ... business of providing portable power. Energizer manufactures and/or markets a complete line of primary alkaline and carbon zinc, miniature and rechargeable batteries primarily under the brands Energizer ® e2 ®, Energizer ® and Eveready , as well as specialty photo lithium batteries, flashlights...

  • Page 13
    ... organizational structure following the acquisition. Energizer continues to report segment results reflecting all profit derived from each outside customer sale in the region in which the customer is located. Energizer's Gross margin dollars increased $182.4, or 24%, in 2003 primarily due to the...

  • Page 14
    ...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...

  • Page 15
    ... demand from carbon zinc to alkaline batteries, Energizer undertook and completed in the fourth quarter of fiscal 2001 a comprehensive study of its carbon zinc manufacturing plant locations and capacities. Energizer also reviewed its worldwide operations in light of competitive market conditions...

  • Page 16
    ... depreciation and inventory obsolescence recorded in cost of products sold. The carrying value of assets held for disposal under restructuring plans was $1.3 at September 30, 2003. Energizer continues to review its battery production capacity and its business structure in light of pervasive global...

  • Page 17
    ... 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 Energizer's non-consolidated SPE...

  • Page 18
    ... REPORT ENERGIZER HOLDINGS, INC. MANAGEMENT 'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Continued (Dollars in millions except per share and percentage data) Energizer purchased shares of its common stock under various Board of Director approved repurchase plans...

  • Page 19
    ... 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, 2003 and 2002, the fair market value of Energizer...

  • Page 20
    Page 18 ENR 2003 ANNUAL REPORT ENERGIZER HOLDINGS, INC. MANAGEMENT 'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Continued (Dollars in millions except per share and percentage data) Energizer's hedging strategy involves the use of natural hedging techniques, where ...

  • Page 21
    ...SWS sales and margins, future pricing volatility in the battery category, Energizer's estimates of its share of total United States retail alkaline market, its positioning to meet consumer demand and the benefits of its portfolio of products, Energizer's assessment of the wet shave products category...

  • Page 22
    Page 20 ENR 2003 ANNUAL REPORT 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, 2003(a) 2002 2001 2000 1999 Net sales Depreciation and amortization (b) Earnings from...

  • Page 23
    ENR 2003 ANNUAL REPORT Page 21 RESPONSIBILITY FOR FINANCIAL STATEMENTS 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...

  • Page 24
    ... ANNUAL REPORT ENERGIZER HOLDINGS, INC. CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME (Dollars in millions except per share data) STATEMENT OF EARNINGS YEAR ENDED SEPTEMBER 30, 2003 2002 2001 Net sales Cost of products sold Selling, general and administrative expense Advertising...

  • Page 25
    ENR 2003 ANNUAL REPORT Page 23 ENERGIZER HOLDINGS, INC. CONSOLIDATED BAL ANCE SHEET (Dollars in millions except per share data) SEPTEMBER 30, 2003 2002 ASSETS Current assets Cash and cash equivalents Trade receivables, net Inventories Other current assets Total current assets Property, plant ...

  • Page 26
    ... Acquisition of Schick-Wilkinson Sword, net of cash acquired Proceeds from sale of assets Other, net Net cash used by investing activities (73.0) (960.9) 9.0 (0.1) (1,025.0) (40.7) - 7.3 - (33.4) (77.9) - 10.8 1.8 (65.3) CASH FLOW FROM FINANCING ACTIVITIES Net cash proceeds from issuance of long...

  • Page 27
    ENR 2003 ANNUAL REPORT Page 25 ENERGIZER HOLDINGS, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY (Dollars in millions, shares in thousands) Dollars 2003 2002 2001 2003 Shares 2002 2001 Common stock: Balance at beginning of year Activity under stock plans Ending balance Additional paid-in ...

  • Page 28
    ... and indefinite-lived intangibles are no longer amortized, but evaluated annually for impairment as part of Energizer's annual business planning cycle. The fair value of the reporting unit is estimated using the discounted cash flow method. Intangible assets with finite lives are amortized on...

  • Page 29
    ... to promote sales of its products. Promotional payments and allowances that represent primarily a reduction in price paid by a retail customer, distributor, wholesaler or ultimate consumer are recorded in net sales. The provision for doubtful accounts receivable is included in selling, general and...

  • Page 30
    ... to adjustment based on acquired working capital level. The final purchase price and acquisition costs totaled $975.8. A $550.0 bridge loan which, together with existing available credit facilities and cash, were used to fund the acquisition. In June and July of 2003, Energizer refinanced the bridge...

  • Page 31
    ... RESTRUCTURING ACTIVITIES In the fourth quarter of 2003, Energizer recorded restructuring provisions of $1.3, primarily for production staff reductions of the Razors and Blades segment. The provisions included $1.2 for cash severance payments and $0.1 for other cash charges. A total of 16 employees...

  • Page 32
    Page 30 ENR 2003 ANNUAL REPORT ENERGIZER HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (Dollars in millions, except per share data) The following table presents, by major cost component and by year of provision, activity related to the restructuring charges discussed above ...

  • Page 33
    ... of its business planning cycle in the fourth quarter of fiscal 2003 and fiscal 2002, Energizer completed its impairment test of goodwill and intangibles, which resulted in no significant impairment. The fair value of the reporting unit was estimated using the discounted cash flow method. During...

  • Page 34
    Page 32 ENR 2003 ANNUAL REPORT ENERGIZER HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (Dollars in millions, except per share data) 8. INCOME TAXES The provisions for income taxes consisted of the following for the years ended September 30: 2003 Consolidated 2002 ...

  • Page 35
    ... group of officers, key employees and directors upon their purchase of an equal number of shares of ENR stock within a specified period. The Board approved the grants of similar restricted stock equivalents in prior years. The restricted stock equivalents vest three years from their respective dates...

  • Page 36
    ... and salary, and for directors, retainers and fees, under the terms of its Deferred Compensation Plan. Under this plan, employees or directors deferring amounts into the Energizer Common Stock Unit Fund are credited with a number of stock equivalents based on the fair value of ENR stock at the time...

  • Page 37
    ... of service and earnings. In 2003, Energizer assumed defined benefits for certain active SWS employees at the acquisition date. Such employees were covered by Energizer's defined benefit plans following the acquisition. Energizer also sponsors or participates in a number of other non-U.S. pension...

  • Page 38
    ... ENR 2003 ANNUAL REPORT ENERGIZER HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (Dollars in millions, except per share data) The accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets...

  • Page 39
    ... the acquisition) may then purchase a share of ENR stock at onethird of its then-current market price. If Energizer merges with any other person or group after the Rights become exercisable, a holder of a Right may purchase, at the exercise price, common stock of the surviving entity having a value...

  • Page 40
    Page 38 ENR 2003 ANNUAL REPORT ENERGIZER HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (Dollars in millions, except per share data) Energizer can redeem the Rights at a price of $.01 per Right at any time prior to the time a person or group actually acquires 20% or more of ...

  • Page 41
    ... of Energizer, 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...

  • Page 42
    ... credit posted were $0.5 at September 30, 2003 and such letters expire annually, however they will likely be renewed upon expiration in support of Energizer's ongoing operations. Energizer guaranteed loans for certain common stock purchases made by certain executive officers and other key executives...

  • Page 43
    ENR 2003 ANNUAL REPORT Page 41 20. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION SUPPLEMENTAL BAL ANCE SHEET INFORMATION 2003 2002 INVENTORIES Raw materials and supplies Work in process Finished products Total inventories $ 56.5 116.3 257.8 430.6 $ 44.5 98.6 215.9 359.0 $ $ OTHER CURRENT ASSETS...

  • Page 44
    ... $ 11.8 SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION 2003 2002 2001 Interest paid Income taxes paid $ 31.6 75.6 $ 19.9 95.7 $ 36.1 83.1 21. SEGMENT INFORMATION Also, certain costs previously reported in general corporate and other expenses that primarily support the battery business have been...

  • Page 45
    ... PROFITABILITY North America Battery International Battery R&D Battery Total Battery Razors and Blades Total segment profitability General corporate and other expenses Provisions for restructuring and other related costs Gain on sale of property Acquisition inventory valuation Intellectual property...

  • Page 46
    ... ENR 2003 ANNUAL REPORT ENERGIZER HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued (Dollars in millions, except per share data) Geographic segment information on a legal entity basis: 2003 2002 2001 Supplemental product information is presented below for net sales: 2003 2002...

  • Page 47

  • Page 48
    Energizer Holdings, Inc. 533 Maryville University Dr. St. Louis, Missouri 63141 314.985.2000 www.energizer.com