Energizer 2007 Annual Report Download - page 15

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Energizer Holdings, Inc. 2007 Annual Report
Gross profit declined $9.7 in 2006, including $7.0 of unfavorable
currency impact. Absent currencies, gross profit declined $2.7 in spite
of higher sales as the contribution of higher volume was more than
offset by unfavorable pricing and product mix and higher material
costs. Overall product cost was unfavorable $9.6 as higher material
and distribution costs of $16 were partially offset by other production
cost savings. Segment profit declined $1.2, including $4.2 unfavorable
currency impact. Absent currencies, segment profit increased 2% as
lower A&P expense more than offset gross profit declines and higher
selling costs.
Razors and Blades
2007 2006 2005
Net sales $988.8 $929.8 $930.8
Segment profit $155.5 $127.7 $107.5
Razors and Blades sales in 2007 increased $59.0, including $26.3
of favorable currency impacts. Initial launch sales of new products
in the current year were approximately $26 compared to approxi-
mately $52 in the same period last year. Absent currency and initial
product launches discussed above, sales increased 6%, as Quattro
branded system products contributed $40 of sales growth, dispos-
ables contributed $32 and Intuition contributed $14 partially offset
by lower sales of older technology products.
Segment profit increased $27.8 in 2007, on $16.4 of contribu-
tion from higher sales, favorable currency of $3.8, and lower SG&A
and R&D expenses. Lower SG&A reflects cost savings of European
restructuring. R&D expense declined $3.7 due to the inclusion of a
large, discrete R&D project expense in the prior year.
Razors and Blades sales in 2006 declined $1.0 in absolute dollars
but increased $17.5, or 2%, on a constant currency basis. The
increase on a constant currency basis reflects incremental sales of
newly launched products, partially offset by declines in older tech-
nology products. Excluding currency impacts, Quattro for Women and
Intuition contributed $44 of sales growth while disposables and the
men’s Quattro franchise grew $15 and $8, respectively. These
increases were partially offset by declines in older technology sys-
tems and ancillary product lines.
In 2006, segment profit increased $20.2 in absolute dollars and
$27.8, or 26%, on a constant currency basis. Excluding currency,
higher sales, lower product cost and cost mix accounted for the bulk of
the improved profitability. A&P expense declined $9.8 for the year as
significant reductions in early 2006 were partially offset by a $12.9
increase in the fourth quarter primarily in support of Quattro Titanium.
The decline in A&P for the year reflects lower consumer promotions
and sampling, partially offset by higher advertising. R&D and market-
ing and selling spending increased $4.6 and $2.5, respectively.
General Corporate and Other Expenses
2007 2006 2005
General corporate expenses $ 93.3 $ 87.0 $ 96.0
Restructuring and
related charges 18.2 37.4 5.7
Foreign pension charge –4.5 –
General corporate and
other expenses $111.5 $128.9 $101.7
% of total net sales 3.3% 4.2% 3.4%
General Corporate Expenses General corporate expenses increased
in 2007 compared to 2006 due to higher stock-based compensation,
partially offset by lower project related costs. In 2006, general corpo-
rate expenses decreased $9.0, due to lower incentive and stock-based
compensation and legal expenses.
Restructuring and Related Charges The Company continually
reviews its battery and razors and blades business models to identify
potential improvements and cost savings. A project commenced in
2006 to improve effectiveness and reduce costs of European packag-
ing, 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.
The Company also commenced a project to integrate battery and
razors and blades commercial management, sales and administrative
functions in certain European countries. In 2007, total pre-tax
charges related to these projects were $18.2, and include exit costs of
$7.0 which represent employee severance and contract terminations,
as well as $11.2 for other non-exit costs related to the project. Total
pre-tax charges related to the projects were $37.4 in fiscal 2006, and
include exit costs of $28.2 which represented employee severance,
contract terminations and other exit costs, as well as $9.2 for other
costs related to the project.
As of September 30, 2007, the projects are substantially complete
and virtually all charges have been recorded. Beginning in 2008, it is
expected the projects will result in $21 to $24 of annualized cost sav-
ings. Cost savings of approximately $17 have been realized in 2007.
See Note 5 to the Consolidated Financial Statements for further
information on restructuring activities.
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 finan-
cial statements, including for the year ended September 30, 2006.
Interest and Other Financing Items Interest expense increased $13.3
in 2007 and $25.5 in 2006 due to higher average borrowings resulting
from share repurchases and higher interest rates.