Energizer 2009 Annual Report Download - page 17

ENERGIZER HOLDINGS INC. 2009 ANNUAL REPORT PAGE 15
savings had no impact on the 2008 versus 2007 comparative as the
costs were not included in the Company’s results for either year.
Interest and Other Financing Items Interest expense for 2009
decreased $36.6 due primarily to lower average borrowings. Other
financing items, which includes interest income and foreign exchange
gains and losses from the Company’s worldwide affiliates, were
unfavorable $10.3 for the fiscal year due primarily to exchange losses
incurred as the U.S. dollar based payables for our foreign affiliates were
unfavorably impacted by the rapid and significant strengthening of the
U.S. dollar versus most local currencies during the first fiscal quarter.
Interest expense for fiscal 2008 increased $90.1 on higher average
borrowings resulting from the Playtex acquisition. Other financing
expense was unfavorable $25.2 due primarily to exchange losses in
fiscal 2008 compared to exchange gains in fiscal 2007, and lower
interest income in fiscal 2008 of $8.4 due to lower cash balances as
a result of the Playtex acquisition.
Income Taxes Income taxes, which include federal, state and foreign
taxes, were 33.1%, 30.4% and 26.0% of earnings before income
taxes in 2009, 2008 and 2007, respectively. Income taxes include
the following items which impact the overall tax rate:
■ Adjustments were recorded in each of the three years to revise
previously recorded tax accruals to reflect refinement of estimates
of tax attributes to amounts in filed returns, settlement of tax audits
and other tax adjustments. Such adjustments increased the income
tax provision by $1.5 in 2009 and by $1.1 in 2008 and decreased
the income tax provision by $7.9 in 2007.
■ A tax benefit of $1.4 was recorded in 2009 associated with the
write-up and subsequent sale of inventory acquired in the Edge/
Skintimate shave preparation acquisition. A similar tax benefit of
$11.0 was recorded in 2008 associated with the write-up and
subsequent sale of inventory acquired in the Playtex acquisition.
■ In 2007, $4.3 of tax benefits related to prior years’ losses were
recorded. These benefits related to foreign countries where our
subsidiary subsequently began to generate earnings and could
reasonably expect future profitability sufficient to utilize tax loss
carry-forwards prior to expiration. Improved profitability in Mexico
accounts for the bulk of the benefits recognized.
■ Legislation enacted in Germany in August 2007 reduced the tax rate
applicable to the Company’s subsidiaries in Germany for fiscal 2008
and beyond. Thus, an adjustment of $9.7 was made to reduce
deferred tax liabilities in fiscal 2007.
The Company’s effective tax rate is highly sensitive to country mix, from
which earnings or losses are derived. Declines in earnings in lower tax
rate countries, earnings increases in higher tax rate countries, repatria-
tion of foreign earnings or operating losses in the future could increase
future tax rates. Additionally, adjustments to prior year tax accrual
estimates could increase or decrease future tax provisions.
Liquidity and Capital Resources
On May 20, 2009, the Company completed the sale of an additional
10.925 million shares of common stock for $49.00 per share. Net
proceeds from the sale of the additional shares were $510.2. The
Company used $275 of the net proceeds to complete the purchase of
the shave preparation brands on June 5, 2009 and used $100 to repay
private placement notes, which matured on June 30, 2009. The remain-
ing proceeds have contributed significantly to the increase in cash on
hand at September 30, 2009 and the repayment of an additional $200
of private placement notes on September 28, 2009.
Operating Activities Cash flow from operations is the primary funding
source for operating needs and capital investments. Cash flow from
operations was $489.2 in 2009, an increase of $22.7 as compared to
2008. Cash flow from operations was $466.5 in 2008, an increase of
$21.2 as compared to $445.3 for 2007. The increase in cash flow from
operations in 2009 was due primarily to lower assets used in opera-
tions partially offset by lower liabilities. The increase in 2008 was due
to higher cash flow before changes in working capital due primarily to
changes in deferred taxes.
The most significant driver of the higher cash flow from operations
in 2009 was accounts receivable, which was lower by $106.7 at
September 30, 2009, excluding the impact of acquired brands. This
decrease was due to lower net sales as compared to the prior period
and improved accounts receivable aging. This decrease in accounts
receivable coupled with lower inventories on a year over year basis
of $21.8 more than offset a reduction in accounts payable and other
current liabilities, which were collectively lower by $109.5 due primarily
to reduced advertising and promotional accruals resulting from lower
spending and lower accruals for compensation and benefits including
the impact of the change in PTO policy.
Investing Activities Net cash used by investing activities was $412.2,
$1,994.5 and $82.3 in 2009, 2008 and 2007, respectively. Capital
expenditures were $139.7, $160.0 and $88.6 in 2009, 2008 and 2007,
respectively. These expenditures were funded by cash flow from opera-
tions. Capital expenditures increased in 2008 as compared to 2007
due to production related spending and Playtex related spending. See
Note 18 to the Consolidated Financial Statements for capital expendi-
tures by segment. On June 5, 2009, the Company paid $275.0 for the
acquisition of the shave preparation brands. On October 1, 2007, the
first day of fiscal 2008, the Company paid $1,875.7 for the acquisition
of Playtex. See “Financing Activities” below for discussion of the financ-
ing of the Playtex transaction. At September 30, 2007, the Company
held a net-cash settled prepaid share option with a major multinational
financial institution to mitigate the impact of changes in the Company’s
deferred compensation liabilities. In December 2007, the prepaid
feature was removed from the transaction and the Company received
cash of $60.5, which was used to repay existing debt. Of the $60.5
received in fiscal 2008, $46.0 was a return of investment and was clas-
sified within investing activities on the Statement of Cash Flows. The
remaining $14.5 was a return on investment and was classified as a
cash inflow from operating activities on the Statement of Cash Flows.