Energizer 2006 Annual Report Download - page 13

ENR 2006 ANNUAL REPORT 11
a $9.0, or $0.12 per diluted share, provision related to repatriation of foreign
earnings under the American Jobs Creation Act and
restructuring charges of $3.7, or $0.05 per diluted share, related to several
individually immaterial restructuring projects.
Fiscal 2004 net earnings included the following, stated on an after-tax basis:
income tax benefits related to prior year losses and adjustments to prior year
tax accruals totaling $24.7, or $0.30 per diluted share, partially offset by,
a charge for special termination pension benefits of $9.6, or $0.12 per diluted
share and
restructuring charges of $3.4, or $0.04 per diluted share.
Operating Results
Net Sales
Net sales in 2006 increased $87.1, or 3%, in absolute dollars and $110.4,
or 4%, on a constant currency basis compared to 2005. Both battery
segments accounted for the increased absolute dollar sales while the
Razors and Blades segment sales were flat in absolute dollars and up
2% on a constant currency basis. Net sales in 2005 increased $177.1, or
6%, in absolute dollars and $113.5, or 4%, on a constant currency basis,
compared to 2004, with contributions from each business segment.
See Segment Results below for additional discussion of sales changes.
Gross Margin
Gross margin dollars increased $3.1 in 2006 primarily on increases
in the Razors and Blades and North America Battery segments, partially
offset by a decline in the International Battery segment. Gross margin
dollars increased $69.0 in 2005 with increases in all segments. Gross
margin percentage was 48.1% of sales in 2006, 49.4% in 2005 and
50.1% in 2004. The current year margin percentage decline reflects
lower margin percentage in both battery segments, partially offset by
an increase in the Razors and Blades segment. The decrease in 2005
compared to 2004 is primarily attributable to a decline in the North
America Battery segment. See Segment Results for a discussion of
gross margin in each operating segment.
Selling, General and Administrative
Selling, general and administrative expense (SG&A) increased $20.5
in 2006 due to higher restructuring charges, and to a lesser extent,
increases in each segment. SG&A increased $30.6 in 2005 on increases
in each segment, primarily Razors and Blades, and higher corporate
costs. SG&A expenses were 19.6%, 19.4% and 19.6% of sales in 2006,
2005 and 2004, respectively.
Advertising and Promotion
Advertising and promotion (A&P) decreased $18.7 in 2006 on lower
spending in the International Battery and Razors and Blades segments.
A&P expense decreased $15.7 in 2005 on lower spending in all segments,
partially offset by higher currency translation of $7.8. A&P expense was
12.0%, 13.0% and 14.3% of sales for 2006, 2005 and 2004, respectively. A&P
expense can vary from year to year with new product launches, strategic
brand support initiatives and the overall competitive environment.
Research and Development
Research and development (R&D) expense was $74.2 in 2006, $69.9
in 2005 and $74.0 in 2004. The expense in 2006 includes a $4.6
increase in the Razors and Blades segment primarily related to a
discrete R&D project. The 2004 expense includes a $4.2 asset impair-
ment charge related to a discontinued technology development initiative.
As a percent of sales, R&D expense was 2.4% in 2006, 2.3% in 2005
and 2.6% in 2004.
Segment Results
Operations for the Company are managed via three major segments -
North America Battery (U.S. and Canada battery and lighting products),
International Battery (rest of world battery and lighting products) and
Razors and Blades (global razors, blades and related products). The
Company reports segment results reflecting all profit derived from each
outside customer sale in the region in which the customer is located.
Research and development costs for the battery segments are com-
bined and included in the Total Battery segment results. Research and
development costs for Razors and Blades are included in that seg-
ment’s results. Segment performance is evaluated based on segment
operating profit exclusive of general corporate expenses, share-based
compensation costs, costs associated with most restructuring, integra-
tion or business realignment and amortization of intangible assets.
Financial items, such as interest income and expense, are managed on
a global basis at the corporate level. This structure is the basis for the
Company’s reportable operating segment information presented in
Note 17 to the Consolidated Financial Statements.
The Company’s operating model includes a combination of stand-
alone and combined business functions between the battery and razor
and blades businesses, varying by country and region of the world.
Shared functions include product warehousing and distribution, various
transaction processing functions, and environmental activities, and in
some countries, combined sales forces and management. Beginning in
fiscal 2006, the Company applied a fully allocated cost basis, in which
shared business functions are allocated between the businesses. Prior
years were adjusted to this same basis and reconciliations, including
the SFAS 123R adjustment described later under “Accounting
Standards,” are presented in Note 18 to the Consolidated Financial
Statements. Such allocations do not represent the costs of such services
if performed on a stand-alone basis.
NORTH AMERICA BATTERY
2006 2005 2004
Net sales $ 1,233.8 $ 1,173.1 $ 1,117.6
Segment profit $ 300.7 $ 295.8 $ 298.2
For the year ended September 30, 2006, sales increased $60.7, or
5%, virtually all due to higher volume. Energizer MAX volume for the year
increased 4% as higher general demand was partially offset by a decline
in hurricane-related battery sales. Fiscal 2006 had approximately
$5 of hurricane-related sales compared to approximately $21 in 2005.
High performance lithium and rechargeable battery volume grew more