Energizer 2006 Annual Report Download - page 15

ENR 2006 ANNUAL REPORT 13
$12.9 increase in the fourth quarter primarily in support of Quattro
Titanium. The decline in A&P for the year reflects lower consumer pro-
motions and sampling, partially offset by higher advertising. R&D and
marketing and selling spending increased $4.6 and $2.5, respectively.
Sales in 2005 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-generating 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 2005 increased $31.3 with favorable currency
impacts accounting for $6.6. Absent currencies, segment profit
increased 32% 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 return to 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 repre-
sents a slight reduction in SG&A as a percent of sales.
GENERAL CORPORATE AND OTHER EXPENSES
2006 2005 2004
General corporate expenses $ 87.0 $92.6 $ 62.2
Restructuring and related charges 37.4 5.7 5.2
Initial integration of SWS –3.4 17.9
Foreign pension charge 4.5 ––
Special pension termination benefits ––15.2
General corporate and other expenses $ 128.9 $101.7 $ 100.5
% of total net sales 4.2% 3.4% 3.6%
General Corporate Expenses
General corporate expenses decreased $5.6 in 2006 compared to
2005, due to lower incentive and stock-based compensation and legal
expenses. General corporate expenses in 2005 increased $30.4 com-
pared to 2004, due to higher expenses for incentive and stock-based
compensation, retirement plans, financial compliance, information
systems and litigation.
Restructuring and Related Charges
The Company continually reviews its battery and razor and blades
business models to identify potential improvements and cost savings.
A project commenced in 2006 to improve effectiveness and lower costs
of European packaging, warehouse and distribution activities, including
the closing of the Company’s battery packaging facility in Caudebec,
France, as well as consolidation of warehouse and distribution activities.
Total project charges of $24.1 were recorded in fiscal 2006, including
$15.9 of exit costs charged to SG&A expense representing employee
severance, contract terminations and other exit costs. Other costs asso-
ciated with the project were $8.2. Annual cost savings of $6.2 are
expected, commencing in fiscal 2007. As of September 30, 2006, the proj-
ect is substantially complete and virtually all charges have been recorded.
The Company has also commenced a project to integrate battery
and razor and blades commercial management, sales and administrative
functions in certain European countries. Specific actions related to this
project are in various stages of evaluation, planning and execution. It is
anticipated that the total project will result in charges to pre-tax
earnings of $27 to $33, the bulk of which will occur by the end of 2007.
Total pre-tax charges related to the project were $13.3 in fiscal 2006,
recorded in SG&A expense, and include exit costs of $12.3 which
represent employee severance, contract terminations and other exit
costs as well as $1.0 for other costs related to the project. It is expected
the project will result in $15 to $20 of annualized cost savings once fully
implemented. Cost savings of $2 have been realized in 2006.
See Note 5 to the Consolidated Financial Statements for further
information on 2006 restructuring activities.
Initial Integration of SWS
Major integration activities related to the SWS acquisition were completed
as of September 30, 2004. Integration savings in 2004 were approxi-
mately $13, increasing to approximately $18 in 2005 and thereafter.
Foreign Pension Charge
In September 2006, the Company discovered that one of its non-U.S.
subsidiaries had failed over several years to adjust its statutory pension
accounting to U.S. GAAP, resulting in a cumulative understatement of
its pension liability by $4.5 at September 30, 2005. A charge of $4.5,
or $3.7 after-tax, was recorded in the fourth quarter of 2006 to correct
the cumulative understatement in prior years, in addition to the recording
of the 2006 additional U.S. GAAP expense of $0.6. The Company has
determined the effect of this error is not material to any of its previously
issued quarterly or annual financial statements, including for the year
ended September 30, 2006.
Special Pension Termination Benefits
During the fourth quarter of fiscal 2004, Energizer announced a
Voluntary Enhanced Retirement Option (VERO) offered to approximately
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. Cost savings
from the VERO program were $6 in 2005, increasing to approximately
$10 in 2006 and beyond.
Interest and Other Financing Items
Interest expense increased $25.5 in 2006 and $21.6 in 2005 due to
higher average borrowings resulting from share repurchases and higher
interest rates.
Other financing expense was unfavorable $3.6 in 2006 compared
to 2005 and favorable $4.3 in 2005 compared to 2004, primarily due
to lower currency exchange losses in 2005 than in 2006 and 2004.