Energizer 2007 Annual Report Download - page 14

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Energizer Holdings, Inc. 2007 Annual Report
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 combined and included in the Total Battery segment
results. Research and development costs for Razors and Blades are
included in that segment’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, integration or business realignment activities 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 operat-
ing 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
razors and blades businesses, varying by country and region of the
world. Shared functions include product warehousing and distribu-
tion, various transaction processing functions and environmental
activities, and in some countries, combined sales forces and manage-
ment. Such allocations do not represent the costs of such services if
performed on a stand-alone basis. The Company applies a fully allo-
cated cost basis, in which shared business functions are allocated
between the businesses.
Beginning in the first fiscal quarter of 2008, and as a result of the
Playtex acquisition and subsequent realignment of management
responsibilities, the Company will report results of two segments: the
Household Products segment, which will include global batteries and
lighting products, and the Personal Care segment, which will include
global wet shave, skin care, feminine care and infant care.
North America Battery
2007 2006 2005
Net sales $1,330.6 $1,233.8 $1,173.1
Segment profit $ 330.5 $ 300.7 $ 295.8
For the year ended September 30, 2007, sales increased $96.8, or
8%, primarily due to favorable pricing and product mix of $54.8 and
higher sales volume of $38.1. Fiscal 2007 benefited from price
increases implemented in both 2006 and 2007 in response to signifi-
cant increases in material costs. For the current year, Energizer MAX
unit sales were flat reflecting soft volume in the overall premium
alkaline battery segment of the category, partially due to virtually no
hurricane-related consumption. Lithium and rechargeable battery
units grew in excess of 30%. Canadian currency translation favorably
impacted sales by $3.9.
Gross profit increased $49.9 in 2007 as higher sales were partially
offset by higher product costs, primarily due to the increased cost of
zinc. Product cost in the current year was unfavorable $33.9 com-
pared to the same period last year as material cost increases of
$49.7 were partially offset by other cost reductions. Segment profit
increased $29.8, or 10%, as higher gross profit was partially offset by
higher advertising, promotion and selling expenses.
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 approxi-
mately $5 of hurricane-related sales compared to approximately $21
in 2005. High performance lithium and rechargeable battery volume
grew more than 40%. Battery charger sales were up more than 50%,
including the launch of our new Energi To Go cell phone charger line.
For our portfolio of lower priced products, which includes carbon zinc
and Eveready Gold alkaline batteries, volume declined 2% in 2006.
Overall pricing and product mix were unfavorable $7.6 in 2006 as
higher list prices, particularly in the latter portion of the year, were
more than offset by a continuing shift to trade channels that feature
larger package sizes with lower per unit prices. Canadian currency
translation favorably impacted sales by $6.1 in 2006 compared to 2005.
Gross profit dollars increased $10.9 in 2006 as contribution from
higher sales was partially offset by $16.7 of unfavorable product costs.
Material and distribution costs were unfavorable $20, with zinc cost
increases accounting for the vast majority of the total. Segment profit
increased $4.9, as higher gross profit was partially offset by higher
A&P and general and administrative expenses.
International Battery
2007 2006 2005
Net sales $1,045.7 $913.3 $885.9
Segment profit $ 177.7 $177.3 $178.5
For the year ended September 30, 2007, net sales increased
$132.4, or 14%, with favorable currency accounting for $45.3 of the
increase. On a constant currency basis, sales increased 10%, as higher
volumes in all areas contributed $73.5 and overall pricing and prod-
uct mix was favorable $13.6. The volume contribution reflects double
digit unit growth rates for branded alkaline, rechargeable and
lithium batteries, while carbon zinc units declined. Price increases in
a number of markets in response to material cost increases were par-
tially offset by unfavorable product mix, primarily in Europe.
Gross profit increased $32.9 in absolute dollars, but declined $5.1
on a constant currency basis, as the contribution from higher volume
and pricing was more than offset by $49.4 of unfavorable product
cost, primarily due to material costs. Segment profit was essentially
flat in absolute dollars but declined $26.2 excluding currency impacts
due to higher SG&A and A&P expenses in addition to the gross
profit impact.
For the year ended September 30, 2006, net sales increased $27.4,
or 3%. Excluding currency impacts, International Battery sales
increased $38.3, or 4%, on higher volume partially offset by unfavor-
able pricing and product mix, primarily in Europe. An extremely
competitive European pricing environment, combined with sales
shifting to larger package sizes that sell at lower per unit prices,
accounted for the unfavorable pricing.
Management’s Discussion and Analysis of Results of Operations and Financial Condition
(Dollars in millions, except per share and percentage data)