Energizer 2005 Annual Report Download - page 15

ENR 2005 Annual Report 13
The Company’s acquisition of SWS was completed on March 28,
2003; therefore, SWS is not included in the attached historical finan-
cial statements prior to this date. The comparison of September 30,
2004 amounts are versus pro forma SWS results for the year ended
September 30, 2003. Segment profit excludes the impact of the
2003 cost of products sold related to the SWS inventory write-up,
which is discussed in further detail in Note 3 to the Consolidated
Financial Statements.
Razor and blade sales increased $62.7, or 7%, in 2005 including
favorable currency impacts of $23.9. Absent currencies, sales
increased $38.8, or 4%, as incremental sales of QUATTRO for
Women,QUATTRO Power and QUATTRO Energy totaling $67.8,
and higher disposable and replacement blade sales were partially
offset by lower sales of base QUATTRO and Intuition razor handles,
as those product sales normalized following significant trial-generat-
ing promotional activity in the U.S. and initial product launches in
international markets. Legacy brands also declined as sales shifted
to newer products. Segment profit for the year increased $31.6 with
currency impacts accounting for $6.6. Absent currencies, segment
profit increased 29% as margin contribution from higher sales of
$21.0 and lower A&P expense of $12.2 were partially offset by
higher SG&A of $8.6. The decline in A&P in 2005 reflects a returnto
normalized spending levels following major launches in international
markets last year. The increase in SG&A spending reflects increased
investment in resources to support business growth; however, this
increase represents a slight reduction in SG&A as a percent of sales.
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%, 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
A&P expense, and to a lesser extent, higher selling expenses in
support of the new brands.
General Corporate and Other Expenses
Corporate and other expenses were $16.2 higher in 2005 due to
higher expenses for equity,compensation and retirement plans,
financial compliance, information systems and litigation. This was
partially offset by lower business realignment costs, which
decreased by $14.0 in 2005.
In 2004, corporate and other expenses increased $36.8, primarily
reflecting higher legal, integration and business realignment costs,
which includes incremental integration costs of $11.6, and higher
management and administrative costs following the SWS acquisition.
Legal expense increased $11.7 reflecting the impact of litigation costs
in a number of lawsuits, primarily related to intellectual property matters.
Major integration activities were completed as of September 30,
2004. Annualized integration savings were approximately $18 in
total, with approximately $13 of savings realized in 2004.
As a percent of sales, general corporate and other expenses were
3.3% in 2005, 2.9% in 2004 and 2.0% in 2003. The increases in
2005 and 2004 are mainly driven by the items discussed above.
Special Pension Termination Benefits
During the fourth quarter of fiscal 2004, Energizer announced a
Voluntary Enhanced Retirement Option (VERO) offered to approxi-
mately 600 eligible employees in the U.S. of which 321 employees
accepted. A charge of $15.2, pre-tax, was recorded in fiscal 2004
related to the VERO and certain other special pension benefits and
the estimated impact of such benefits on the Company’s pension
plan is reflected in the amounts shown in Note 10 to the Consolidated
Financial Statements. Future cost savings from the VERO program
are expected to be approximately $10 annually, with approximately
$6 realized in 2005.
Intellectual Property Rights Income
The Company entered into agreements to license certain intellectual
property to other parties in separate transactions. Such agreements
do not require any future performance by the Company, thus all
committed consideration was recorded as income at the time each
agreement was executed. The Company recorded income related
to such agreements of $1.5 pre-tax, or $0.9 after-tax, and $8.5 pre-
tax, or $5.2 after-tax, in the years ended September 30, 2004 and
2003, respectively.
Interest and Other Financing Items
Interest expense increased $21.6 in 2005 due to higher interest
rates and higher average borrowings resulting from share repur-
chases. In 2004, interest expense increased $2.6 on higher average
debt, offset by lower interest rates. Higher average debt in 2004
reflects the borrowings for the SWS acquisition outstanding for a
full year compared to six months in 2003. The lower effective inter-
est rate for 2004 was a result of paying offhigh fixed rate debt in
September 2003 and generally lower rates on variable rate debt.
In 2005, other financing expense was favorable $4.3 primarily due
to higher interest income and lower exchange losses. Other financing
expense declined $13.7 in 2004 compared to 2003, which included
a$20.0 charge in 2003 related to early repayment of debt. Additionally,
2004 experienced net currency exchange losses compared to net
gains in 2003.
Income Taxes
Income taxes, which include federal, state and foreign taxes, were
28.0%, 25.3% and 28.5% of earnings before income taxes in 2005,
2004 and 2003, respectively. Earnings before income taxes and
income tax provision include certain unusual items and adjustments
to prior recorded tax accruals in all years, which impact the overall
tax rate. The most significant of these are described as follows: