Energizer 2004 Annual Report Download - page 15

ENR 2004 Annual Report 13
pro forma SWS results for the six months ended September 30, 2002.
Segment profit excludes the SWS inventory write-up, which is discussed
in further detail in Note 3 to the Consolidated Financial Statements.
For the year ended September 30, 2004, sales increased $123.1, or
17%, as incremental sales of Intuition and QUATTRO and $52.4 of
favorable currency were partially offset by anticipated declines in other
product lines. QUATTRO and Intuition combined contributed almost
$275 of net sales in 2004, an increase of more than $150.
Segment profit for the year increased $28.8, or 51%, to $85.7, with
currency impacts accounting for $15.7 of the improvement. Absent
currencies, higher sales and lower product costs resulted in increased
gross margin of $83.7, which was partially offset by significantly higher
advertising and promotion expense, and to a lesser extent, higher selling
expenses in support of the new brands.
SIX MONTHS ENDED SEPTEMBER 30, 2003 2002 PRO FORMA
Net sales $ 433.0 $ 322.2
Segment profit $ 40.1 $ 26.0
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 of
$21.0 was nearly offset by declines in existing product sales in countries
where new products were launched.
Segment profit for the six months ended September 30, 2003, was
$40.1, an increase of $14.1 on higher sales and favorable currency
impacts 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
majority of the QUATTRO media campaign did not begin until October.
General Corporate and Other Expenses
Corporate and other expenses increased $31.3 for the year, primarily
reflecting higher legal, integration and business realignment costs, and
higher management and administrative costs following the SWS acquisi-
tion. Integration costs of $17.9 in 2004 and $6.3 in 2003 are reflected
in corporate and general expenses. Major integration activities have been
completed as of September 30, 2004. Annual integration savings are
projected at approximately $18 for 2005, of which approximately $13
was realized in 2004 and is reflected in segment results. Legal expense
increased $11.7 reflecting the impact of litigation costs in a number of
lawsuits, primarily related to intellectual property matters.
General corporate and other expenses increased $14.7 in 2003 reflecting
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.
As a percent of sales, general corporate and other expenses were 2.9%
in 2004, 2.2% in 2003 and 2.0% in 2002. The increase in 2004 is
driven mainly by the integration and legal expenses discussed above.
Restructuring Charges
In March 2002, the Company 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 restruc-
turing 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,
2004, 55 employees had been terminated under the plan and all activi-
ties under the plan have been completed. The 2002 restructuring plan
yielded pre-tax savings of $2.5 in 2003 and $4.5 annually thereafter.
During fiscal 2001, the Company adopted restructuring plans to eliminate
carbon zinc capacity and to reduce and realign certain selling, production,
research and administrative functions. In 2002, the Company recorded
provisions for restructuring of $1.4 related to the 2001 plan and recorded
net reversals of previously recorded restructuring charges of $0.4.
The 2001 restructuring plans improved the Company’s operating
efficiency, downsized and centralized corporate functions, and decreased
costs. One carbon zinc production facility in Mexico was closed in early
2002. A total of 539 employees were terminated, consisting of 340
production and 199 sales, research and administrative employees,
primarily in the U.S. and South and Central America. The 2001 restruc-
turing plan yielded pre-tax savings of $14.3 in 2002 and $16.5 in
2003 and beyond.
The Company continues 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. Such charges may
include impairment of production assets and employee termination costs.
See Note 4 to the Consolidated Financial Statements for a table that pres-
ents, by major cost component and by year of provision, activity related to
the restructuring charges discussed above during fiscal years 2004, 2003
and 2002 including any adjustments to the original charges.