Energizer 2003 Annual Report Download - page 15

ENR 2003 ANNUAL REPORT Page 13
Segment profit excludes the SWS inventory write-up, which is discussed
in further detail in Note 3 to the Consolidated Financial Statements.
For the six months ended September 30, 2003, Razors and Blades
sales were $433.0, an increase of $110.8 compared to the same
period last year, with nearly all of the increase from incremental sales
of the new Intuition™ and QUATTRO™ products, much of which
represents retail pipeline fill. For existing products, favorable currency
translation was nearly offset by declines in existing product sales in
countries where new products were launched.
Segment profit for the six months was $40.1, an increase of $14.1 on
higher sales and favorable currency impact of $3.4, partially offset by
significantly higher advertising, promotion, selling and marketing
expense in support of Intuition™ and, to a lesser extent, QUATTRO™.
During the latter half of September 2003, SWS had significant pipeline fill
for QUATTRO™ and relatively low advertising and promotion expense as the
QUATTRO™ media campaign did not begin until October. Looking forward
into fiscal 2004, SWS will provide significant advertising and market sup-
port for QUATTRO™ and Intuition™, particularly in the December quarter.
Older product sales will likely be negatively impacted by newer product
sales, however the amount of such decline is not possible to predict.
GENERAL CORPORATE AND OTHER EXPENSES
General corporate and other expenses increased $14.7 in 2003 reflect-
ing costs of integrating the SWS business of $6.3, as well as lower
pension income and higher management, legal and project expenses,
partially offset by lower compensation costs related to incentive plans
and stock price.
General corporate and other expenses increased $21.8 in 2002 com-
pared 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 17 to the
Consolidated Financial Statements.
As a percent of sales, general corporate and other expenses were 2.2%
in 2003, 2.0% in 2002 and 0.8% in 2001.
RESTRUCTURING CHARGES
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 will be terminated in
early fiscal 2004 related to this restructuring action. These reductions
were not contemplated at the date of the SWS acquisition. These provi-
sions were largely offset by a $1.1 reversal of last year’s provision due to
a reduction in planned actions related to the 2002 restructuring plan.
Nine employees originally planned for termination will not be terminated
under the plan.
In March 2002, Energizer adopted a restructuring plan to reorganize
certain European selling, management, administrative and packaging
activities. The total cost of this plan was $6.7 before taxes. These
restructuring charges consist of $5.2 for cash severance payments,
$1.0 of other cash charges and $0.5 in enhanced pension benefits. As
of September 30, 2003, 45 employees have been terminated and 10
remain to be terminated by December 31, 2003. The 2002 restructur-
ing plan yielded pre-tax savings of $2.5 in 2003 and should ultimately
save $4.5 annually.
Because of a continued migration of consumer 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 and avail-
able technologies and techniques. During fiscal 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, as well as related costs for accelerated depreci-
ation and inventory obsolescence of $2.6, which was recorded in cost
of products sold in the first quarter of fiscal 2002. In addition, Energizer
recorded net reversals of previously recorded restructuring charges of
$0.4 during the fourth quarter of fiscal 2002.
The 2001 restructuring plans improved Energizer’s operating efficien-
cy, 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