Energizer 2004 Annual Report Download - page 31

by GAAP. The fair value of finished goods acquired is sales value,
less costs to sell and a reasonable profit margin on the selling activity.
As such, the inventory is valued equivalent to what a distributor
would pay, rather than the historical cost basis of a manufacturer of
such inventory. This accounting resulted in an allocation of purchase
price to acquired inventory which was $89.7 higher than the histor-
ical manufactured cost of SWS (the SWS inventory write-up).
Inventory value and cost of products sold will be based on the post-
acquisition SWS production costs for all product manufactured after
the acquisition date. The entire $89.7 of the SWS inventory write-up
was recognized in cost of products sold in 2003, reducing net earnings
by $58.3, after taxes.
•Fair values of real and personal property were determined utilizing
the cost approach whereby the replacement/reproduction cost new
was estimated and then adjusted for physical depreciation and
applicable forms of obsolescence. Land values were a relatively
small portion of the fixed asset total and were recorded at estimated
fair market value.
•Other intangible assets include tradenames, technology and patents,
and customer-related intangibles. Such intangible assets were valued
at fair value as of the acquisition date using appropriate valuation
methodologies for each class. Tradenames were valued using the
Relief from Royalties Method, a form of the Income Approach,
which values the cost savings associated with owning rather than
licensing the tradename. Fair values were developed for each brand
using future revenue estimates and appropriate royalty rates.
Technology and Patents were also valued using the Relief from
Royalty Method, valuing each key technological aspect of SWS
products. Customer-related intangibles were valued using the
Residual Income or Multi-Period Excess Earnings Method, a form
of the Income Approach, which values SWS' relationships with its
customers. Valuations for all of these intangible classes were
performed on an after-tax, present value basis using appropriate
tax and discount rates.
•Liabilities were valued at the present value of estimated amounts to
be paid in the future.
•Goodwill represents the residual aggregate purchase price after all
tangible and identified intangible assets have been valued, offset by
the value of liabilities assumed. The aggregate purchase price was
derived from a competitive bidding process and negotiations and
was influenced by the Company’s assessment of the value of the
overall SWS business in combination with the Energizer business.
The significant goodwill value is reflective of the Company’s view
that the SWS business can generate strong cash flow, and sales
and earnings growth following acquisition.
The Consolidated Statement of Earnings includes results of SWS
operations for fiscal 2004 and the final six months of fiscal 2003. The
following table represents the Company’s pro forma consolidated results
of operations as if the acquisition of SWS had occurred at the beginning
of each period presented. Such results have been prepared by adjusting
the historical Company results to include SWS results of operations and
incremental interest and other expenses related to acquisition debt.
The pro forma results do not include any cost savings resulting from the
combination of Energizer and SWS operations. The pro forma results
may not necessarily reflect the consolidated operations that would have
existed had the acquisition been completed at the beginning of such
periods nor are they necessarily indicative of future results.
UNAUDITED PRO FORMA FOR THE YEAR ENDED
SEPTEMBER 30, 2003 2002
Net sales $ 2,544.5 $ 2,364.8
Net earnings 167.9 195.4
Basic earnings per share 1.95 2.15
Diluted earnings per share 1.90 2.11
4. Restructuring Activities
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
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, 2004, 55 employees had been terminated under the
plan and all activities under the plan have been completed.
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 effi-
ciency, 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 Latin America. The 2001 restructuring
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.
The carrying value of assets held for disposal under several previous
restructuring plans was $6.3 at September 30, 2004.
ENR 2004 Annual Report 29