Energizer 2003 Annual Report Download - page 14

Page 12 ENR 2003 ANNUAL REPORT
operations are now managed via three major segments - North America
Battery (the United States and Canada batteries and lighting products),
International Battery (rest of world battery and lighting products) and
Razors and Blades (global razors, blades and related products).
Research and development costs for the battery segments are combined
and included in the Total Battery segment results. Research and devel-
opment costs for Razors and Blades are included in that segment’s
results. Certain costs previously reported in general corporate and other
expenses that primarily support the battery business were allocated to
the North America Battery and International Battery segments.
This structure is the basis for Energizer’s reportable operating segment
information presented in Note 21 to the Consolidated Financial Statements.
Prior periods have been restated for comparability. Energizer evaluates
segment profitability based on operating profit before general corporate
expenses, restructuring provisions and related costs, amortization of
intangibles and unusual items. Financial items, such as interest income
and expense, are managed on a global basis at the corporate level.
North America Battery
2003 2002 2001
Net sales $ 1,054.7 $ 1,035.0 $ 970.3
Segment profit $ 285.5 $277.7 $ 198.5
Net sales in 2003 increased $19.7, or 2%, versus 2002 on higher
volume, much of which is attributable to hurricane and East Coast
blackout related demand, partially offset by unfavorable pricing and
product mix. Small cell-size alkaline volume decreased 5% for the year
reflecting reductions in aggregate retail inventory, partially offset by
consumption growth. Large alkaline cell size and lighting products
volume increased 10% and 26%, respectively; these products are
most affected by hurricanes, power outages and public safety
concerns. Additionally, the remainder of Energizer’s major product
lines experienced double-digit growth in 2003.
Pricing in 2003 was unfavorable as a result of steep promotional
discounting early in the year and a mid-year reduction in list prices on
key products in response to competition. Promotional intensity in the
category began to abate in the latter half of fiscal 2003, buffering the
list price reduction. Additionally, Energizer experienced an unfavorable
product mix as the greatest sales growth was in the lowest margin
products while the most profitable products experienced declines. As
a result of these factors, gross margin for the year decreased $12.3,
or 3%, in spite of the sales increase. Segment profit increased $7.8 in
2003, as the absence of a $15.0 write-off of Kmart pre-bankruptcy
accounts receivable in 2002 and lower overhead spending were partially
offset by lower gross margin.
Net sales in 2002 increased $64.7, or 7%, on higher volume. Alkaline
and photo lithium battery unit sales increased 7% and 22%, respective-
ly. Pricing and product mix was slightly unfavorable for the year. Gross
margin increased $75.4 in 2002 on lower product cost and higher
sales. Segment profit increased $79.2, or 40%, reflecting higher mar-
gins and lower overhead and advertising expenses, partially offset by
the $15.0 write-off of Kmart pre-bankruptcy accounts receivable.
International Battery
2003 2002 2001
Net sales $ 744.8 $ 704.7 $ 723.9
Segment profit $ 120.4 $98.4 $ 77.5
International Battery net sales increased $40.1, or 6%, in 2003 on
favorable currency translation of $31.0 as well as favorable pricing,
primarily in South America, and higher alkaline sales volume, partially
offset by lower carbon zinc volume. Retail alkaline sales volume
increased 4% while carbon zinc volume decrease 5%. Segment profit
increased $22.0, or 22%, with favorable currency accounting for $17.3
of the improvement. Absent currency impacts, segment profit increased
$4.7, or 5%, reflecting favorable pricing and product mix, primarily in
South America, and lower product cost. These favorable factors were
partially offset by a 35% increase in advertising and promotion expense
for the International Battery segment reflecting increased investments
in our brand franchises as economic conditions improved in several
key regions.
Net sales in 2002 decreased $19.2, virtually all due to unfavorable
currency impacts, primarily in South America. Favorable pricing and
product mix in 2002, primarily in Europe, was substantially offset by
lower carbon zinc unit volume in all international regions. Segment profit
improved $20.9 despite the sales decrease as lower product and over-
head costs and higher pricing more than offset unfavorable impacts of
currency declines.
Razors and Blades
SIX MONTHS ENDED SEPTEMBER 30, 2003 2002 PRO FORMA
Net sales $ 433.0 $ 322.2
Segment profit $ 40.1 $26.0
Energizer’s acquisition of SWS was completed on March 28, 2003; there-
fore, SWS is not included in the attached historical financial statements
prior to this date. The comparison of current year amounts are versus pro
forma SWS results for the six months ended September 30, 2002.
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)