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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2002
Commission File No. 001-15401
ENERGIZER HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1863181
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(State of Incorporation) (I.R.S. Employer Identification No.)
533 MARYVILLE UNIVERSITY DRIVE, ST. LOUIS MISSOURI 63141
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(Address of principal executive offices) (Zip Code)
(314) 985-2000
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(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
-----
Number of shares of Energizer Holdings, Inc. common stock, $.01 par value,
outstanding as of the close of business on July 26, 2002.
90,683,107
------------------------
PART I - FINANCIAL INFORMATION
ENERGIZER HOLDINGS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(CONDENSED)
(DOLLARS IN MILLIONS--UNAUDITED)
QUARTER ENDED NINE MONTHS
JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Net sales . . . . . . . . . . . . . . . . . $389.9 $347.2 $1,297.3 $1,261.5
Cost of products sold . . . . . . . . . . . 220.5 215.8 715.3 732.0
Selling, general and administrative expense 71.8 70.1 232.8 246.4
Advertising and promotion expense . . . . . 26.8 30.7 97.2 107.4
Research and development expense. . . . . . 8.9 11.8 27.2 34.4
Provisions for restructuring. . . . . . . . - - 5.9 -
Intellectual property rights income . . . . - (20.0) - (20.0)
Interest expense. . . . . . . . . . . . . . 4.7 7.9 16.2 26.6
Other financing items, net. . . . . . . . . (0.7) (0.5) 0.8 1.1
------- ------- --------- ---------
Earnings before income taxes. . . . . . . . 57.9 31.4 201.9 133.6
Income taxes. . . . . . . . . . . . . . . . (18.1) (15.7) (71.7) (58.1)
------- ------- --------- ---------
Net earnings. . . . . . . . . . . . . . . . $ 39.8 $ 15.7 $ 130.2 $ 75.5
======= ======= ========= =========
Basic earnings per share. . . . . . . . . . $ 0.44 $ 0.17 $ 1.42 $ 0.81
Diluted earnings per share. . . . . . . . . $ 0.43 $ 0.17 $ 1.40 $ 0.80
See accompanying Notes to Condensed Financial Statements
ENERGIZER HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS--UNAUDITED)
JUNE 30, SEPTEMBER 30, JUNE 30,
2002 2001 2001
---- ---- ----
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . $ 52.1 $ 23.0 $ 15.1
Trade receivables, less allowance for doubtful
accounts of $8.6, $11.8 and $12.2, respectively 183.1 189.1 174.5
Inventories
Raw materials and supplies. . . . . . . . . . . 42.5 47.0 52.5
Work in process . . . . . . . . . . . . . . . . 112.1 91.4 120.0
Finished products . . . . . . . . . . . . . . . 192.6 222.9 224.7
--------- --------- ---------
Total Inventory . . . . . . . . . . . . . . . 347.2 361.3 397.2
Other current assets. . . . . . . . . . . . . . . 230.4 209.9 188.8
--------- --------- ---------
Total current assets. . . . . . . . . . . . . . 812.8 783.3 775.6
--------- --------- ---------
Property at cost. . . . . . . . . . . . . . . . . . 1,045.5 1,030.0 1,028.0
Accumulated depreciation. . . . . . . . . . . . . . 584.4 553.9 548.4
--------- --------- ---------
461.1 476.1 479.6
Other assets. . . . . . . . . . . . . . . . . . . . 247.0 238.2 360.6
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . $1,520.9 $1,497.6 $1,615.8
========= ========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current maturities of long-term debt. . . . . . . $ 15.0 $ - $ -
Notes payable . . . . . . . . . . . . . . . . . . 65.8 110.3 113.9
Accounts payable. . . . . . . . . . . . . . . . . 98.1 109.2 83.7
Other current liabilities . . . . . . . . . . . . 288.0 275.7 216.5
--------- --------- ---------
Total current liabilities . . . . . . . . . . . 466.9 495.2 414.1
Long-term debt. . . . . . . . . . . . . . . . . . . 160.0 225.0 320.0
Other liabilities . . . . . . . . . . . . . . . . . 175.7 169.5 165.9
Shareholders equity
Common stock. . . . . . . . . . . . . . . . . . . 1.0 1.0 1.0
Additional paid in capital. . . . . . . . . . . . 786.4 784.1 784.1
Retained earnings . . . . . . . . . . . . . . . . 147.7 17.5 132.0
Treasury stock. . . . . . . . . . . . . . . . . . (105.9) (79.6) (79.6)
Accumulated other comprehensive loss. . . . . . . (110.9) (115.1) (121.7)
--------- --------- ---------
Total shareholders equity . . . . . . . . . . . 718.3 607.9 715.8
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . $1,520.9 $1,497.6 $1,615.8
========= ========= =========
See accompanying Notes to Condensed Financial Statements
ENERGIZER HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONDENSED)
(DOLLARS IN MILLIONS - UNAUDITED)
NINE MONTHS ENDED JUNE 30,
2002 2001
---- ----
CASH FLOW FROM OPERATIONS
Net earnings. . . . . . . . . . . . . . . . . . . . . $ 130.2 $ 75.5
Non-cash items included in income . . . . . . . . . . 48.7 72.9
Sale of accounts receivable, net. . . . . . . . . . . (36.2) (20.0)
Changes in assets and liabilities used in operations. 29.3 62.4
Other, net. . . . . . . . . . . . . . . . . . . . . . 3.4 (0.1)
-------- --------
Net cash flow from operations . . . . . . . . . . . 175.4 190.7
CASH FLOW FROM INVESTING ACTIVITIES
Property additions. . . . . . . . . . . . . . . . . . (29.9) (59.1)
Proceeds from sale of property. . . . . . . . . . . . 1.2 10.0
Other, net. . . . . . . . . . . . . . . . . . . . . . (0.6) 1.6
-------- --------
Net cash used by investing activities . . . . . . . (29.3) (47.5)
CASH FLOW FROM FINANCING ACTIVITIES
Principal payments on long-term debt (including
current maturities) . . . . . . . . . . . . . . . . (50.0) (50.0)
Net increase/(decrease) in notes payable. . . . . . . (45.1) (14.4)
Treasury stock purchases. . . . . . . . . . . . . . . (26.3) (79.6)
Proceeds from issuance of common stock. . . . . . . . 1.8 0.2
-------- --------
Net cash used by financing activities . . . . . . . (119.6) (143.8)
-------- --------
Effect of exchange rate changes on cash . . . . . . . . 2.6 (0.3)
-------- --------
Net increase in cash and cash equivalents . . . . . . . 29.1 (0.9)
Cash and cash equivalents, beginning of period. . . . . 23.0 16.0
-------- --------
Cash and cash equivalents, end of period. . . . . . . . $ 52.1 $ 15.1
======== ========
See accompanying Notes to Condensed Financial Statements
ENERGIZER HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2002
(DOLLARS IN MILLIONS - UNAUDITED)
NOTE 1 - The accompanying unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for any quarter are not necessarily indicative of the results
for any other quarter or for the full year. These statements should be read in
conjunction with the financial statements and notes thereto for Energizer
Holdings, Inc. (Energizer) for the year ended September 30, 2001.
NOTE 2 - On October 1, 2001, Energizer adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Intangible Assets" (SFAS 142). SFAS 142
eliminates the amortization of goodwill and instead requires goodwill be tested
for impairment at least annually. Intangible assets deemed to have an
indefinite life under SFAS 142 are no longer amortized, but instead reviewed at
least annually for impairment. Intangible assets with finite lives are
amortized over their useful lives.
As businesses have been acquired in the past, Energizer has allocated goodwill
and other intangible assets to reporting units within each operating segment.
Energizer's intangible assets are comprised of trademarks related to the
Energizer name, which are deemed indefinite-lived intangibles. Thus beginning
in fiscal 2002, these trademarks are no longer amortized.
As part of the implementation of SFAS 142, Energizer completed transitional
tests in the first quarter of fiscal 2002, which resulted in no impairment. The
fair value of the reporting unit was estimated using the discounted cash flow
method. Prospectively, Energizer will test its goodwill and intangible assets
for impairment as a part of its annual business planning cycle in the fourth
quarter of each fiscal year.
The following table represents the carrying amount of goodwill and trademarks by
segment at June 30, 2002:
North South & Central
America Asia Europe America Total
------- ---- ------ ------- -----
Goodwill . . . . . . . . . . . . 24.7 0.9 8.9 2.8 37.3
======= ====== === === =======
Trademarks - Gross . . . . . . . 413.8 25.0 - - 438.8
Trademarks - Accum. amortization (354.4) (10.0) - - (364.4)
------- ------ --- --- -------
Trademarks - Net carrying amount 59.4 15.0 - - 74.4
======= ====== === === =======
As required by SFAS 142, the results for periods prior to fiscal 2002 were not
restated in the accompanying consolidated statement of earnings. A
reconciliation between net earnings and earnings per share reported by Energizer
and net earnings and earnings per share as adjusted to reflect the impact of
SFAS 142 is provided below.
Quarter ended Nine Months Ended
------------- -----------------
June 30, 2001 June 30, 2001
-------------- --------------
Net earnings:
As reported . . . . . . . . . . . . . . . $ 15.7 $ 75.5
Goodwill amortization, net of tax . . . . 3.0 9.1
Intangible asset amortization, net of tax 0.8 2.3
-------------- --------------
Adjusted net earnings . . . . . . . . . . $ 19.5 $ 86.9
============== ==============
Quarter ended Nine Months Ended
------------- -----------------
June 30, 2001 June 30, 2001
-------------- --------------
Basic earnings per share:
As reported . . . . . . . . . . . . . . . $ 0.17 $ 0.81
Goodwill amortization, net of tax . . . . 0.03 0.10
Intangible asset amortization, net of tax 0.01 0.02
-------------- --------------
Adjusted net earnings . . . . . . . . . . $ 0.21 $ 0.93
============== ==============
Diluted earnings per share:
As reported . . . . . . . . . . . . . . . $ 0.17 $ 0.80
Goodwill amortization, net of tax . . . . 0.03 0.10
Intangible asset amortization, net of tax 0.01 0.02
-------------- --------------
Adjusted net earnings . . . . . . . . . . $ 0.21 $ 0.92
============== ==============
Basic shares. . . . . . . . . . . . . . . . 91.7 92.9
Diluted shares. . . . . . . . . . . . . . . 93.5 94.5
NOTE 3 - The Emerging Issues Task Force (EITF) issued EITF 00-10, "Accounting
for Shipping and Handling Fees and Costs," which provides guidance on earnings
statement classification of amounts billed to customers for shipping and
handling. Energizer adopted EITF 00-10 in its fourth quarter of fiscal 2001.
Reclassification was necessary from net sales to cost of products sold of $6.9
and $25.5 for the quarter and nine months ended June 30, 2001, respectively. In
addition, warehousing costs in selling, general and administrative expense of
$7.3 and $23.3 for the quarter and nine months ended June 30, 2001,
respectively, were reclassified to cost of products sold. There was no impact
to net earnings.
The EITF also issued EITF 00-14 and 00-25. EITF 00-14, "Accounting for Certain
Sales Incentives," provides guidance on accounting for discounts, coupons,
rebates and free product. EITF 00-25, "Vendor Income Statement Characterization
of Consideration from a Vendor to a Retailer," provides guidance on accounting
for considerations other than those directly addressed in EITF 00-14. Energizer
adopted EITF 00-14 and 00-25 in its fourth quarter of fiscal 2001.
Reclassification of $6.3 and $21.2 was necessary from advertising and promotion
expense to net sales for the quarter and nine months ended June 30, 2001,
respectively. There was no impact to net earnings.
NOTE 4 - Energizer operations are managed via four geographic segments. In the
past, each segment has reported profit from its intersegment sales in its own
segment's results. Changes in intersegment profit captured in inventory not yet
sold to outside customers were recorded in general corporate expenses. Due to
increased levels of intersegment sales related to production consolidation and
in light of Energizer's current management objectives and structure, Energizer
believes the exclusion of intersegment profit from segment results is a more
appropriate presentation of its operating segments.
Beginning in fiscal 2002, Energizer reports segment results reflecting all
profit derived from each outside customer sale in the region in which the
customer is located. Profit on sales to other segments is no longer reported in
the selling region. As a result, segments with manufacturing capacity that are
net exporters to other segments show lower segment profit than in the past.
Segments that are net importers of Energizer manufactured product show higher
segment profit than in the past.
This new structure is the basis for the Company's reportable operating segment
information disclosed below. Segment performance is evaluated based on
operating profit, exclusive of general corporate expenses, research and
development expenses, restructuring charges and amortization of goodwill and
intangibles. Financial items, such as interest income and expense, are managed
on a global basis at the corporate level.
FOR THE QUARTER ENDED
JUNE 30,
2002 2001
-------- --------
NET SALES
North America . . . . . . . . . $ 231.2 $ 191.3
Asia Pacific. . . . . . . . . . 80.3 73.6
Europe. . . . . . . . . . . . . 57.0 53.1
South & Central America . . . . 21.4 29.2
-------- --------
Total Net Sales . . . $ 389.9 $ 347.2
======== ========
FOR THE NINE MONTHS
ENDED JUNE 30,
2002 2001
-------- --------
NET SALES
North America . . . . . . . . . $ 767.3 $ 705.0
Asia Pacific. . . . . . . . . . 238.6 251.9
Europe. . . . . . . . . . . . . 210.6 199.2
South & Central America . . . . 80.8 105.4
-------- --------
Total Net Sales . . . $1,297.3 $1,261.5
======== ========
FOR THE QUARTER ENDED JUNE 30,
----------------------------
2002 2001
------ ------
PROFITABILITY
North America. . . . . . . . . . . . . . . . . . . . $ 60.0 $ 23.2
Asia Pacific . . . . . . . . . . . . . . . . . . . . 21.5 14.6
Europe . . . . . . . . . . . . . . . . . . . . . . . 1.1 (1.1)
South and Central America. . . . . . . . . . . . . . 0.4 0.4
------- -------
TOTAL SEGMENT PROFITABILITY . . . . . . . . . . . $ 83.0 $ 37.1
General corporate and other expenses . . . . . . . . (12.2) (0.8)
Research and development expense . . . . . . . . . . (8.9) (11.8)
-------- -------
Operating profit before unusual items
and amortization . . . . . . . . . . . . . . . . 61.9 24.5
Provisions for restructuring and other related costs - -
Intellectual property rights income. . . . . . . . . - 20.0
Amortization of intangibles. . . . . . . . . . . . . - (5.7)
Interest and other financial items . . . . . . . . . (4.0) (7.4)
-------- -------
Total earnings before income taxes. . . . . . . . $ 57.9 $ 31.4
======== =======
FOR THE NINE MONTHS ENDED JUNE 30,
------------------------------------
2002 2001
------ ------
PROFITABILITY
North America. . . . . . . . . . . . . . . . . . . . $ 220.9 $ 149.4
Asia Pacific . . . . . . . . . . . . . . . . . . . . 58.1 54.1
Europe . . . . . . . . . . . . . . . . . . . . . . . 8.5 (0.7)
South and Central America. . . . . . . . . . . . . . 7.8 11.2
------- --------
TOTAL SEGMENT PROFITABILITY . . . . . . . . . . . $ 295.3 $ 214.0
General corporate and other expenses . . . . . . . . (40.7) (21.3)
Research and development expense . . . . . . . . . . (27.2) (34.4)
-------- -------
Operating profit before unusual items
and amortization . . . . . . . . . . . . . . . . 227.4 158.3
Provisions for restructuring and other related costs (8.5) -
Intellectual property rights income. . . . . . . . . - 20.0
Amortization of intangibles. . . . . . . . . . . . . - (17.0)
Interest and other financial items . . . . . . . . . (17.0) (27.7)
-------- -------
Total earnings before income taxes. . . . . . . . $ 201.9 $ 133.6
========== =======
FOR THE QUARTER ENDED JUNE 30,
------------------------------
NET SALES BY PRODUCT LINE 2002 2001
------ ------
Alkaline Batteries . . . . . . . . . . . . . . . $ 255.4 $ 219.2
Carbon Zinc Batteries. . . . . . . . . . . . . . 57.7 57.2
Lighting Products. . . . . . . . . . . . . . . . 24.5 25.7
Miniature Batteries. . . . . . . . . . . . . . . 17.6 14.8
Other. . . . . . . . . . . . . . . . . . . . . . 34.7 30.3
------ ------
Total Net Sales $ 389.9 $ 347.2
====== ======
FOR THE NINE MONTHS ENDED JUNE 30,
----------------------------------
NET SALES BY PRODUCT LINE 2002 2001
-------- --------
Alkaline Batteries . . . . . . . . . . . . . . . . $ 887.6 $ 832.4
Carbon Zinc Batteries. . . . . . . . . . . . . . . 182.7 203.8
Lighting Products. . . . . . . . . . . . . . . . . 79.5 84.3
Miniature Batteries. . . . . . . . . . . . . . . . 52.5 48.8
Other. . . . . . . . . . . . . . . . . . . . . . . 95.0 92.2
-------- --------
Total Net Sales $1,297.3 $1,261.5
======== ========
NOTE 5 - Basic earnings per share is based on the average number of common
shares outstanding during the period. Diluted earnings per share is based on
the average number of shares used for the basic earnings per share calculation,
adjusted for the dilutive effect of stock options and restricted stock
equivalents.
The following table sets forth the computation of basic and diluted earnings per
share for the quarter and nine months ended June 30, 2002, and 2001,
respectively.
Quarter Ended Nine Months Ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
----- ----- ------ -----
Numerator:
Numerator for basic and dilutive earnings per share -
Net earnings. . . . . . . . . . . . . . . . . . . . $39.8 $15.7 $130.2 $75.5
Denominator:
Denominator for basic earnings per share -
Weighted average shares . . . . . . . . . . . . . . 91.1 91.7 91.4 92.9
Effect of dilutive securities
Stock Options . . . . . . . . . . . . . . . . . . . 1.5 1.2 0.9 1.1
Restricted Stock Equivalents. . . . . . . . . . . . 0.7 0.6 0.6 0.5
----- ----- ------ -----
2.2 1.8 1.5 1.6
Denominator for dilutive earnings per share -
Weighted-average shares and assumed conversions . . 93.3 93.5 92.9 94.5
===== ===== ====== =====
Basic earnings per share. . . . . . . . . . . . . . . . $ 0.44 $ 0.17 $ 1.42 $0.81
Diluted earnings per share. . . . . . . . . . . . . . . $ 0.43 $ 0.17 $ 1.40 $0.80
NOTE 6 - The following table reconciles earnings and earnings per share
excluding unusual items to as reported net earnings and earnings per share.
For the quarter For the nine months
ended June 30, ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net Earnings:
- --------------
Net earnings excluding unusual items . . . . . . . . . . . $39.8 $ 7.2 $142.1 $ 74.6
Provisions for restructuring & related costs, net (Note 7) - - (5.8) -
Accounts receivable write-down, net (Note 8) . . . . . . . - - (6.1) -
Intellectual property rights income, net (Note 9). . . . . - 12.3 - 12.3
Amortization, net (Note 2) . . . . . . . . . . . . . . . . - (3.8) - (11.4)
----- ------- ------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $39.8 $ 15.7 $130.2 $ 75.5
===== ======= ======= =======
Basic Earnings Per Share:
- -------------------------
Basic earnings per share excluding unusual items . . . . . $0.44 $ 0.08 $ 1.55 $ 0.80
Provisions for restructuring & related costs, net. . . . . - - (0.06) -
Accounts receivable write-down, net. . . . . . . . . . . . - - (0.07) -
Intellectual property rights income, net . . . . . . . . . - 0.13 - 0.13
Amortization, net. . . . . . . . . . . . . . . . . . . . . - (0.04) - (0.12)
----- ------- ------- -------
Basic earnings per share . . . . . . . . . . . . . . . . . $0.44 $ 0.17 $ 1.42 $ 0.81
===== ======= ======= =======
Diluted Earnings Per Share:
- ---------------------------
Diluted earnings per share excluding unusual items . . . . $0.43 $ 0.08 $ 1.53 $ 0.79
Provisions for restructuring & related costs, net. . . . . - - (0.06) -
Accounts receivable write-down, net. . . . . . . . . . . . - - (0.07) -
Intellectual property rights income, net . . . . . . . . . - 0.13 - 0.13
Amortization, net. . . . . . . . . . . . . . . . . . . . . - (0.04) - (0.12)
----- ------- ------- -------
Diluted earnings per share . . . . . . . . . . . . . . . . $0.43 $ 0.17 $ 1.40 $ 0.80
===== ======= ======= =======
NOTE 7 - In March 2002, Energizer adopted a restructuring plan to reorganize
certain European selling affiliates. The plan will involve terminating up to 75
sales and administrative employees resulting in a provision for restructuring of
$6.0 to $8.0, pre-tax. During the quarter ended March 31, 2002, Energizer
recorded a provision for restructuring related to the plan described above of
$4.5 pre-tax, or $2.9 after-tax. The remaining cost of the plan will be recorded
in the fourth quarter of fiscal 2002. As of June 30, 2002, 7 of a total of 75
employees have been terminated, all in the third quarter, in connection with the
2002 plans and $.1 of related costs have been incurred.
As part of restructuring plans announced in the fourth quarter of fiscal 2001,
Energizer ceased production and terminated substantially all of its employees at
its Mexican carbon zinc production facility in the first quarter of fiscal 2002.
Energizer also continued execution of other previously announced restructuring
actions. Energizer recorded provisions for restructuring of $1.4 pre-tax, as
well as related costs for accelerated deprecation and inventory obsolescence of
$2.6 pre-tax, which was recorded in cost of products sold in the first quarter
of fiscal 2002. Total provisions for restructuring and related costs were $4.0
pre-tax, or $2.9 after-tax, in the first quarter of fiscal 2002.
As of June 30, 2002, 533 of a total of 570 employees have been terminated in
connection with the 2001 plans, with 24 terminated in the current quarter.
Activities impacting the restructuring reserve during the nine months ended June
30, 2002, which are recorded in other current liabilities on the Consolidated
Balance Sheet are presented in the following table:
Beginning Ending
Balance Provision Activity Balance
--------- --------- --------- -------
2002 PLAN
- --------------------
Termination benefits - 3.6 (0.1) 3.5
Other cash costs . . - 0.9 - 0.9
--------- --------- --------- -------
Total. . . . . . . . - 4.5 (0.1) 4.4
========= ========= ========= =======
2001 PLAN
- --------------------
Termination benefits 5.3 0.9 (5.1) 1.1
Other cash costs . . 3.9 0.5 (2.0) 2.4
--------- --------- --------- -------
Total. . . . . . . . 9.2 1.4 (7.1) 3.5
========= ========= ========= =======
TOTAL
- --------------------
Termination benefits 5.3 4.5 (5.2) 4.6
Other cash costs . . 3.9 1.4 (2.0) 3.3
--------- --------- --------- -------
Total. . . . . . . . 9.2 5.9 (7.2) 7.9
========= ========= ========= =======
NOTE 8- On January 23, 2002, Kmart filed for Chapter 11 bankruptcy protection.
At March 31, 2002, Energizer's Special Purpose Entity (SPE) (see Note 11) had
pre-petition accounts receivable from Kmart Corporation of $20.0. In the
quarter ended March 31, 2002, Energizer recorded a charge related to such
receivables of $10.0 pre-tax, or $6.1 after-tax. It is not yet known what
portion, if any, of the balance will be collected. Recovery of less than $10.0
of pre-petition receivables may result in additional charges in the future.
NOTE 9 - In the nine months and quarter ended June 30, 2001, Energizer recorded
income of $20.0 pre-tax, or $12.3 after-tax related to the licensing of
intellectual property rights.
NOTE 10 - The components of total comprehensive income for the quarter and nine
months ended June 30, 2002 and 2001, respectively, are shown in the following
table:
For the quarter ended June 30,
2002 2001
------ ------
Net earnings . . . . . . . . . . . . . . . $ 39.8 $ 15.7
Other comprehensive income items:
- - Foreign currency translation adjustments 17.9 (1.0)
---------- ------
Total comprehensive income . . . . . . . . $ 57.7 $ 14.7
========== ======
For the nine months ended June 30,
2002 2001
------ ------
Net earnings. . . . . . . . . . . . . . . . . $ 130.2 $ 75.5
Other comprehensive income items:
- - Foreign currency translation adjustments. . . . 4.8 (10.8)
- - Foreign currency translation adjustments related
to elimination of one month reporting lag - (4.4)
- - Minimum pension liability adjustment,
net of taxes of $.3. . . . . . . . . . . . . . (0.3) -
---------- -------
Total comprehensive income. . . . . . . . . . $ 134.7 $ 60.3
========= =======
NOTE 11 - Energizer participates in an ongoing Asset Securitization Program
(Program) which results in attractive short-term rates and provides financing
diversification. Under the structure of the Program, Energizer sells
substantially all of its US accounts receivable to its wholly owned, bankruptcy
remote subsidiary, Energizer Receivables Funding Corporation (EFRC). ERFC then
sells such accounts receivables to an outside party for a fraction of face value
and retains a subordinated interest for the remaining value, less the financing
cost.
Under accounting rules prescribed by SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities", ERFC meets the
definition of a Special Purpose Entity (SPE) and the sales of accounts
receivable from Energizer to ERFC must be recorded as an "off balance sheet"
sales transaction. As a result of such accounting, ERFC's retained interest in
accounts receivable is classified in Other Current Assets on the Consolidated
Balance Sheet (see Note 13). The following table details the balances related
to the Program:
June 30, 2002 September 30, 2001 June 30, 2001
------------- ------------------ -------------
Total outstanding accounts
Receivable sold to SPE. . 162.5 184.1 144.6
Cash received by SPE from sale of
receivables to a third party 50.0 86.2 80.0
Subordinated retained interest . . 112.5 97.9 64.6
Energizer's investment in SPE. . . 112.5 97.9 64.6
If the Program was structured as a borrowing secured by accounts receivable
rather than sales of accounts receivable, Energizer's balance sheet would
reflect additional accounts receivable, notes payable and lower other current
assets as follows:
June 30, 2002 September 30, 2001 June 30, 2001
------------- ------------------ -------------
Additional accounts receivable 162.5 184.1 144.6
Additional notes payable . . . 50.0 86.2 80.0
Lower other current assets . . 112.5 97.9 64.6
NOTE 12- A portion of Energizer's deferred compensation liabilities is based on
Energizer stock price and is subject to market risk. In May 2002, Energizer
entered into a prepaid share option transaction with a financial institution to
mitigate this risk. Energizer invested $22.9 in the prepaid share option
transaction and recorded it in other current assets. The change in fair value of
the prepaid share option is recorded in selling, general and administrative
expenses. Changes in value of the prepaid share option in future quarters
should substantially offset changes in the deferred compensation liabilities
tied to the Energizer stock price. The change in fair value of the prepaid
share option for the current quarter resulted in income of $.1.
NOTE 13- Other Current Assets consist of the following:
June 30, 2002 September 30, 2001 June 30, 2001
-------------- ------------------- --------------
Investment in SPE. . . . . . $ 112.5 $ 97.9 $ 64.6
Miscellaneous receivables. . 15.4 25.3 47.2
Deferred income tax benefits 44.9 46.3 40.3
Prepaid expenses . . . . . . 55.7 39.8 36.5
Other current assets . . . . 1.9 0.6 0.2
-------------- ------------------- --------------
$ 230.4 $ 209.9 $ 188.8
============== =================== ==============
NOTE 14- Other Assets consist of the following:
June 30, 2002 September 30, 2001 June 30, 2001
-------------- ------------------- --------------
Goodwill. . . . . . . . . . . . . $ 37.3 $ 38.1 $ 153.6
Other intangible assets . . . . . 74.4 72.7 74.3
Pension asset . . . . . . . . . . 114.3 106.2 110.1
Other assets and deferred charges 21.0 21.2 22.6
-------------- ------------------- --------------
$ 247.0 $ 238.2 $ 360.6
============== =================== ==============
NOTE 15- Other Liabilities consist of the following:
June 30, 2002 September 30, 2001 June 30, 2001
-------------- ------------------- --------------
Postretirement benefits liability $ 92.5 $ 91.7 $ 90.7
Other non-current liabilities . . 83.2 77.8 75.2
-------------- ------------------- --------------
$ 175.7 $ 169.5 $ 165.9
============== =================== ==============
NOTE 16-In September 2000, Energizer's Board of Directors approved a share
repurchase plan authorizing the repurchase of up to 5 million shares of
Energizer's common stock. As of May 2002, Energizer purchased substantially all
5 million shares initially authorized. In May 2002, Energizer's Board of
Directors approved a new share repurchase plan authorizing the repurchase of up
to 5 million shares of Energizer's common stock, none of which have been
repurchased as of June 30, 2002.
NOTE 17- The Financial Accounting Standards Board (FASB) issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." SFAS 143 addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. Energizer
is required to adopt SFAS 143 no later than the first quarter of fiscal 2003,
although early adoption is allowed. Energizer determined that the adoption of
SFAS 143 will not have a material effect on its financial statements.
The FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," which provides guidance on the accounting for the impairment
or disposal of long-lived assets. Energizer is required to adopt SFAS 144 no
later than the first quarter of fiscal 2003, although early adoption is allowed.
Energizer determined that the adoption of SFAS 144 will not have a material
effect on its financial statements.
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS 145
updates, clarifies and simplifies existing accounting pronouncements. Energizer
is required to adopt SFAS 145 no later than the first quarter of fiscal 2003,
although early adoption is allowed. Energizer determined that the adoption of
SFAS 145 will not have a material effect on its financial statements.
The FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS
146 provides direction for accounting and disclosure regarding specific costs
related to an exit or disposal activity. These include, but are not limited to,
costs to terminate a contract that is not a capital lease, costs to consolidate
facilities or relocate employees, and certain termination benefits provided to
employees that are involuntarily terminated under the terms of a one-time
benefit arrangement. Energizer is required to adopt SFAS 146 for any disposal
activities initiated after December 31, 2002, although early adoption is
allowed. Energizer is currently reviewing the impact of the adoption of SFAS 146
on its financial statements.
ENERGIZER HOLDINGS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
(DOLLARS IN MILLIONS)
HIGHLIGHTS / OPERATING RESULTS
Net earnings for the nine months ended June 30, 2002 were $130.2, or $1.42
per basic share and $1.40 per diluted share compared to $75.5, or $.81 per basic
share and $.80 per diluted share for the same nine month period last year.
Included in the current nine month net earnings are restructuring provisions and
related costs of $5.8 after taxes, or $.06 per share and a charge related to
Kmart accounts receivable of $6.1 after taxes, or $.07 per share. The prior
year nine month period includes amortization expense that would not have been
amortized under Statement of Financial Accounting Standards (SFAS) 142, of $11.4
after taxes, or $.12 per share and intellectual property rights income of $12.3
after taxes, or $.13 per share. Due to the adoption of SFAS 142 at the
beginning of fiscal 2002 as described in Note 2 to the Condensed Financial
Statements, amortization expense was discontinued beginning in fiscal 2002.
Adjusting for these items in both nine month periods, net earnings would have
been $142.1, or $1.55 per basic share and $1.53 per diluted share in the current
period compared to $74.6, or $.80 per basic share and $.79 per diluted share
last year.
For the quarter ended June 30, 2002, net earnings were $39.8, or $.44 per
basic share and $.43 per diluted share compared to $15.7, or $.17 per share for
the quarter ended June 30, 2001. The prior year quarter includes amortization
expense as described in the previous paragraph of $3.8 after taxes, or $.04 per
share and intellectual property rights income of $12.3 after taxes, or $.13 per
share. Adjusting for these items in the prior year quarter, earnings would have
been $7.2, or $.08 per share. Note 6 summarizes the earnings and earnings per
share excluding unusual items for the current and prior nine months and quarter.
Net sales for the nine months ended June 30, 2002 increased $35.8, or 3%,
as increases in North America and Europe were partially offset by declines in
the South and Central America and Asia Pacific regions. For the quarter, net
sales increased $42.7, or 12% with higher sales in all regions except South and
Central America. See the following section for comments on sales changes by
segment.
Gross margin for the nine months increased $52.5, or 10% reflecting lower
product cost rates and higher sales. For the quarter, gross margin increased
$38.0, or 29% on higher sales and lower product costs. Gross margin percentage
improved 2.9 percentage points to 44.9% for the current nine months and 5.6
percentage points to 43.4% for the quarter. For the nine months and quarter,
all geographic segments benefited from lower product costs reflecting lower
material and variable costs, the impact of restructuring activities undertaken
in the fourth quarter of 2001, and improved plant operating levels compared to
last year.
Selling, general and administrative expenses decreased $13.6, or 6% in the
nine months due to the absence of amortization expense and lower segment
overheads, partially offset by higher general corporate expense. For the
quarter, selling, general and administrative expenses increased $1.7, or 2% as
higher general corporate expenses were partially offset by the absence of
amortization expense in the current quarter and lower segment overheads.
Selling, general and administrative expenses as a percent of sales was 17.9% and
18.4% in the current nine months and quarter, respectively, compared to 19.5%
and 20.2% in the same periods a year ago, respectively.
Advertising and promotion expense declined $10.2, or 9% in the nine months,
primarily in North America. For the quarter, advertising and promotion expense
declined $3.9, or 13% on decreases in the Europe and Asia Pacific regions.
Advertising and promotion as a percent of sales was 7.5% and 6.9% in the current
nine months and quarter, respectively, compared to 8.5% and 8.8% in the same
periods a year ago, respectively.
SEGMENT RESULTS
Energizer Holdings, Inc. (Energizer) operations are managed via four
geographic segments. In the past, each segment has reported profit from its
intersegment sales in its own segment results. Changes in intersegment profit
captured in inventory and not yet sold to outside customers were recorded in
general corporate expenses. Due to increased levels of intersegment sales
related to production consolidation and in light of the Company's current
management objectives and structure, Energizer believes the exclusion of
intersegment profit from segment results is a more appropriate presentation of
its operating segments.
Beginning in fiscal 2002, Energizer reports segment results reflecting all
profit derived from each outside customer sale in the region in which the
customer is located. Profit on sales to other segments is no longer reported in
the selling region. As a result, segments with manufacturing capacity that are
net exporters to other segments show lower segment profit than in the past.
Segments that are net importers of Energizer manufactured product show higher
segment profit than in the past.
This structure is the basis for the Company's reportable operating segment
information, as included in the tables in Note 4 to the Condensed Financial
Statements for the quarter and nine months ended June 30, 2002 and 2001.
North America
Net sales for North America were $767.3 for the nine months ended June 30,
2002, an increase of $62.3, or 9%, on higher alkaline volume, partially offset
by unfavorable pricing and product mix reflecting intense competition and higher
promotional activity, primarily in the first quarter. For the nine months,
alkaline volume increased 12% versus the same period last year.
For the current quarter, sales were $231.2, an increase of $39.9, or 21%
primarily on higher alkaline volume. A large portion of the increased alkaline
volume is attributable to lower sales in last year's third quarter where
Energizer's sales lagged retail consumption by an estimated 8-10%. In addition,
the current quarter includes increased sales to a large customer related to a
packaging change, as well as sell-in for incremental fourth quarter promotional
displays with several customers, each accounting for a 5% increase in third
quarter sales.
A. C. Nielsen reported the overall battery category and Energizer's sales
value declined 4% in the quarter. However, A. C. Nielsen captures data from
less than 50% of the total retail market. Energizer estimates total retail
consumption of its battery products was essentially flat for the quarter as
increases in non-Nielsen measured retailers' offset declines in Nielsen measured
channels.
Gross margin increased $57.4 for the nine months, on improved product cost
and higher sales. Substantial product cost improvements reflect lower material
and other variable costs and improved plant operating levels. Segment profit
increased $71.5, or 48% in the nine months on higher gross margin and lower
overhead and advertising expenses, partially offset by a $10.0 provision for
doubtful accounts receivable from Kmart. Favorable costs for the nine months
reflect the impact of restructuring actions that began in the fourth quarter of
fiscal 2001.
For the quarter, gross margin increased $33.2 on higher sales and lower
product cost. Segment profit increased $36.8 in the quarter on higher gross
margin and lower overhead expenses.
Asia Pacific
Net sales for Asia Pacific were $238.6 for the nine months ended June 30,
2002, a decrease of $13.3, or 5%. Lower carbon zinc volume and unfavorable
currency impacts of $6.7 were partially offset by improved pricing and product
mix. Carbon zinc volume declined 9%, primarily in the first half of the year.
For the quarter, sales were $80.3, an increase of $6.7, or 9%, primarily on
higher alkaline volume.
Segment profit increased $4.0, or 7% for the nine months on lower product,
overhead and advertising costs, partially offset by lower sales and unfavorable
currency impacts. For the quarter, segment profit increased $6.9, or 47% for the
quarter on lower advertising and product costs and higher sales.
Europe
Net sales for Europe were $210.6 for the nine months ended June 30, 2002,
an increase of $11.4, or 6% on improved pricing and product mix, favorable
currency impacts of $2.8 and higher alkaline volume, partially offset by lower
carbon zinc volume. For the quarter, sales were $57.0, an increase of $3.9, or
7% on improved pricing and product mix and favorable currency impacts.
Segment results improved $9.2 for the nine months and $2.2 for the quarter
on higher sales and lower product and advertising costs.
South and Central America
Net sales for South and Central America for the nine months ended June 30,
2002 were $80.8, a decrease of $24.6, or 23% on lower volume and unfavorable
currency effects of $14.2, partially offset by higher prices. For the quarter,
net sales declined $7.8, or 27% on unfavorable currency effects of $8.1 and
lower volume, partially offset by higher prices. Lower sales in Argentina
accounted for about 75% of the sales decline in the nine months and quarter. In
the first quarter, Energizer took deliberate actions to reduce sales and
accounts receivable in Argentina in anticipation of the currency devaluation.
In the second and third quarter, following devaluation, demand has declined
sharply, however Energizer has maintained its market share in Argentina.
Segment profit decreased $3.4 million, or 30% for the nine months as lower
volume and unfavorable currencies were partially offset by higher prices and
lower product and overhead costs. For the quarter, segment profit was flat as
lower volume and currencies were offset by higher prices and lower product
costs. Cost and currency management initiatives in Argentina mitigated a
portion of the impact of the negative economic situation.
Future sales and segment profit for the South and Central America region
will be significantly impacted by economic and market conditions in Argentina,
which accounted for approximately 30% of South and Central America's net sales
for the fiscal year ended September 30, 2001. In addition, following the
economic crisis in Argentina, other Latin American countries have experienced
currency and economic declines. If such conditions continue to worsen,
Energizer's results for that segment are likely to decline accordingly.
OTHER COSTS AND EXPENSES
General Corporate and Other Expenses
Corporate and other expenses increased $19.4 to $40.7 for the nine months
ended June 30, 2002 and increased $11.4 to $12.2 in the current quarter
primarily due to higher compensation costs related to company performance and
stock price. For the nine months, such increases were partially offset by lower
management costs.
Research and Development Expenses
Research and development expenses decreased $7.2 and $2.9 in the current
nine months and quarter ended June 30, 2002, respectively, as Energizer focused
on new and improved products for retail applications and reduced spending on
products designed for industrial applications.
Restructuring Activity
In March 2002, Energizer adopted a restructuring plan to reorganize
certain European selling affiliates. The plan involves terminating up to 75
sales and administrative employees resulting in a provision for restructuring of
$6.0 to $8.0 before taxes. During the quarter ended March 31, 2002, Energizer
recorded a pre-tax provision for restructuring related to the plan described
above of $4.5. The remaining cost of the plan will be recorded in the fourth
quarter of fiscal 2002. Cost savings from the plan are expected to be $2.0 to
$2.5 in fiscal 2003 and $4.5 to $5.0, annually, in fiscal 2004 and thereafter.
As part of the restructuring plans announced in the fourth quarter of
fiscal 2001, Energizer recorded provisions for restructuring of $1.4 before
taxes, as well as related costs for accelerated depreciation and inventory
obsolescence of $2.6 before taxes in the current nine months, which are
reflected in cost of products sold.
Total provisions for restructuring and related costs were $8.5 before
taxes, $5.8 after taxes and $.06 per share in the current nine months. There
were no provisions for restructuring recorded in the current quarter.
Activities impacting the restructuring reserve during the nine months ended
June 30, 2002 are presented in Note 7 to the Condensed Financial Statements.
Intellectual Property Rights Income
In the nine months and quarter ended June 30, 2001, Energizer recorded
income of $20.0 pre-tax or $12.3 after-tax related to the licensing of
intellectual property rights.
Goodwill and Intangible Amortization
Energizer adopted SFAS No. 142, "Goodwill and Other Intangible Assets" as
of October 1, 2001. As a result, Energizer no longer amortizes its goodwill and
intangible assets, which consist of tradenames. See Note 2 to the Condensed
Financial Statements for further discussion.
Interest Expense and Other Financing Costs
Interest expense decreased $10.4 and $3.2 for the current nine months and
quarter ended June 30, 2002, respectively, reflecting lower average borrowings.
Other financing costs were nearly flat for the nine months and quarter as
unfavorable net currency exchange, primarily in Argentina, was substantially
offset by lower discounts on the sale of accounts receivable under a financing
arrangement.
Income Taxes
Income taxes, which include federal, state and foreign taxes, were 35.5%
for the current nine months, compared to a tax rate of 43.5% for the same period
last year. The improvement in the tax rate for the nine-month period is
primarily due to the absence of the unfavorable impact of goodwill amortization,
lower operating losses in certain foreign jurisdictions with no corresponding
tax benefit, lower taxes on the repatriation of foreign earnings, and
realization of tax benefits related to losses in prior years in foreign
jurisdictions. In the near term, recognition of tax benefits related to prior
year tax losses may improve the 2002 rate. At current earnings levels, a
normalized tax rate would be approximately 36% to 37%.
For the current quarter, income taxes were 31.3% compared to 50.0% for the
same period last year. The improvement in the tax rate for the current quarter
reflects the factors cited above. In addition, the current and prior quarter
rates reflect the adjustments necessary to bring the tax rate for the nine
months in line with full year expectations.
Financial Condition
Cash flow from operations was $175.4 for the nine months ended June 30,
2002 compared to $190.7 of cash flow from operations for the same period in
fiscal 2001. The decrease in cash flow from operations was primarily due to
higher cash earnings in 2002, more than offset by smaller working capital
reductions than in the prior year. Capital expenditures totaled $29.9 and $59.1
for the nine months ended June 30, 2002 and 2001, respectively. Energizer
purchased 1,155,000 shares of treasury stock in the nine months ended June 30,
2002 for $26.3.
Working capital was $345.9 at June 30, 2002 compared to $288.1 at September
30, 2001, primarily reflecting seasonal increases. Working capital at June 30,
2002 compared to $361.5 at June 30, 2001 reflects lower inventory and higher
accrued liabilities were offset by lower notes payable and higher investment in
Energizer's Special Purpose Entity (SPE). See below for further discussion on
the SPE. Energizer's total debt decreased from $433.9 at June 30, 2001 to $335.3
at September 30, 2001 to $240.8 at June 30, 2002 as the excess cash generated
from operations was used to pay down debt.
Energizer believes that cash flows from operating activities and periodic
borrowings under existing credit facilities will be adequate to meet short-term
and long-term liquidity requirements prior to the maturity of Energizer's credit
facilities, although no guarantee can be given in this regard.
Special Purpose Entity
Energizer generates accounts receivable from its customers through its
ordinary course of business. Substantially all accounts receivable in the U.S.
are routinely sold to Energizer Receivables Funding Corporation (the SPE), which
is a wholly owned, bankruptcy remote subsidiary of Energizer. The SPE's only
business activities relate to acquiring and selling interests in Energizer's
receivables, which transactions are used as an additional source of liquidity.
The SPE sells an undivided percentage ownership interest in each individual
receivable to an unrelated party (the Conduit) and uses the cash collected on
these receivables to purchase additional receivables from Energizer.
The trade receivables sale facility represents "off-balance sheet
financing," since the Conduit's ownership interest in the SPE's accounts
receivable results in assets being removed from Energizer's balance sheet,
rather than resulting in a liability to the Conduit. Upon the facility's
termination, the Conduit would be entitled to all cash collections on the SPE's
accounts receivable until its purchased interest was repaid.
The terms of the agreements governing this facility qualify trade
receivables sale transactions for "sale treatment" under generally accepted
accounting principles. As such, Energizer is required to account for the SPE's
transactions with the Conduit as a sale of accounts receivable instead of
reflecting the Conduit's net investment as long-term debt with a pledge of
accounts receivable as collateral. Absent this "sale treatment," Energizer's
balance sheet would reflect additional accounts receivable and short-term debt
and lower other current assets. See further discussion in Note 11.
Market Risk
Energizer has interest rate risk with respect to interest expense on
variable rate debt. A hypothetical 10% adverse change in all interest rates
would have had an annual unfavorable impact of $.3 on Energizer's net earnings
and cash flows based upon current debt levels.
A portion of Energizer's deferred compensation liabilities is based on
Energizer stock price and is subject to market risk. In May 2002, Energizer
entered into a prepaid share option transaction to mitigate this risk. Energizer
invested $22.9 in the prepaid share option transaction. The change in fair value
of these options for the current quarter resulted in income of $.1. A
hypothetical 10% adverse change in the quarter end closing stock price for
Energizer would have created a loss on this transaction totaling $2.2. Such
loss, however, would have been substantially offset by gains due to the
reduction of the deferred compensation liabilities tied to the Energizer stock
price. See further discussion in Note 12.
During the quarter ending March 31, 2002, Energizer contributed $8.4 of
capital to its Argentine subsidiary, sufficient to repay all its U.S. dollar
liabilities in order to mitigate exposure to further currency exchange losses.
On January 23, 2002, Kmart Corporation filed for Chapter 11 bankruptcy
protection. At March 31, 2002, Energizer had pre-petition accounts receivable
from Kmart of $20.0. In the quarter ended March 31, 2002, Energizer recorded a
charge related to its receivables from Kmart of $10.0 pre-tax, or $6.1
after-tax. Kmart continues to operate under bankruptcy court supervision and has
not paid any portion of its pre-petition obligations to Energizer. It is not yet
known what portion, if any, of the balance will be collected. Recovery of less
than $10.0 of pre-petition receivables may result in additional charges in the
future.
Critical Accounting Policies
Energizer identified the policies below as critical to its business
operations and the understanding of its results of operations. The following
discussion is presented as recommended by Financial Reporting Release No. 60,
"Cautionary Advice Regarding Disclosure About Critical Accounting Policies."
The impact and any associated risks related to these policies on its business
operations is discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations where such policies affect the
reported and expected financial results.
Preparation of the financial statements in conformity with generally
accepted accounting principles in the United States of America requires
Energizer to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. On an on-going basis, Energizer
evaluates its estimates, including those related to customer programs and
incentives, product returns, bad debts, inventories, intangible assets and other
long-lived assets, income taxes, financing operations, restructuring, pensions
and other postretirement benefits, and contingencies. Actual results could
differ from those estimates. This listing is not intended to be a comprehensive
list of all of Energizer's accounting policies.
Revenue recognition - Energizer provides its customers a variety of
programs designed to promote sales of its products, many of which require
periodic payments and allowances based on estimated results of specific
programs. Such payments and allowances are recorded as a reduction to net
sales. Energizer accrues at the time of sale the estimated total payments and
allowances associated with each sale and continually assesses the adequacy of
accruals for program costs not yet paid. To the extent total program payments
differ from estimates, adjustments may be necessary.
Allowance for Doubtful Accounts - Energizer maintains an allowance for
doubtful accounts receivable for estimated losses resulting from customers that
are unable to meet their financial obligations. The financial condition of
specific customers is considered when establishing the allowance. Provisions to
increase the allowance for doubtful accounts are included in selling, general
and administrative expenses. If actual bad debt losses exceed estimates,
additional provisions may be required in the future.
Pension Plans and Other Postretirement Benefits - The determination of
Energizer's obligation and expense for pension and other postretirement benefits
is dependent on certain assumptions developed by Energizer and used by actuaries
in calculating such amounts. Assumptions include, among others, the discount
rate, future salary increases and the expected long-term rate of return on plan
assets. Actual results that differ from assumptions made are accumulated and
amortized over future periods and therefore, generally affect Energizer's
recognized expense and recorded obligation in such future periods. Significant
differences in actual experience or significant changes in assumptions may
materially affect pension and other postretirement obligations.
Valuation of long-lived assets - Energizer periodically evaluates its
long-lived assets, including goodwill and intangible assets, for potential
impairment indicators. Judgments regarding the existence of impairment
indicators are based on legal factors, market conditions and operational
performance. Future events could cause Energizer to conclude that impairment
indicators exist. Energizer uses the discounted cash flows method to determine
if impairment exists. This requires management to make assumptions regarding
future income, working capital and discount rates, which affect the impairment
calculation.
Income taxes - Energizer estimates income taxes and the income tax rate in
each jurisdiction that it operates. This involves estimating taxable earnings,
specific taxable and deductible items, the likelihood of generating sufficient
future taxable income to utilize deferred tax assets, and possible exposures
related to future tax audits. To the extent these estimates change, adjustments
to income taxes are made in the period in which the estimate is changed.
For interim quarterly reporting, Energizer estimates an annualized blended
world-wide effective tax rate based on estimated taxable earnings and specific
tax attributes of each jurisdiction in which it operates. This estimated
annualized tax rate is applied to the first quarter consolidated pre-tax
earnings. As estimates of the variables discussed above change during the year,
the annualized tax rate may change. Significant changes in a particular
jurisdiction, such as an economic crisis, currency devaluation or change in tax
law can significantly impact Energizer's earnings estimates and thus the
estimated tax rate for the year.
RECENTLY ISSUED ACCOUNTING STANDARDS
See discussion in Note 17 to the Condensed Financial Statements.
FORWARD-LOOKING STATEMENTS
Statements in this document that are not historical, particularly
statements regarding the estimates of retail consumption of Energizer's battery
products in North America and market share in Argentina, the impact of worsening
economic conditions in South and Central America, cost savings from
restructuring activity, Energizer's projected full-year tax rate, its continuing
ability to meet liquidity requirements and the impact of changes in interest
rates may be considered forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Energizer cautions readers
not to place undue reliance on any forward-looking statements, which speak only
as of the date made.
Energizer advises readers that various risks and uncertainties could affect
its financial performance and could cause Energizer's actual results for future
periods to differ materially from those anticipated or projected. Energizer's
estimates of retail consumption of its battery products in North America, or its
market share in Argentina, may be inaccurate, or may not reflect segments of the
retail market. Moreover, Energizer sales volume in future quarters may lag unit
consumption if retailers are currently carrying inventories in excess of
Energizer estimates, or if those retailers elect to further contract their
inventory levels. The impact on Energizer's results of economic developments in
South and Central America may be greater, or less severe, than anticipated.
Energizer's actual tax rate for fiscal 2002 may be higher than projected because
of unforeseen change in tax laws or applicable rate, higher taxes on repatriated
earnings, or greater than anticipated foreign losses. Such losses may be
impacted by local economic conditions or adverse governmental regulation, or by
unforeseen increases in the cost structure of Energizer's foreign affiliates.
Severance costs and other expenses associated with current and proposed
restructuring activity may be higher than anticipated, and there may be unknown
expenses associated with those activities. In addition, the cost reductions
actually realized as a result of restructuring may be less significant than
anticipated. Energizer's ability to maintain compliance with its debt covenants,
as well as changes in its operating cash flows could limit its ability to meet
its liquidity requirements. The impact of adverse interest rate changes could be
more significant than anticipated, particularly if general economic conditions
in the countries in which Energizer operates deteriorate as well. Additional
risks and uncertainties include those detailed from time to time in Energizer's
publicly filed documents, including Energizer's Registration Statement on Form
10, as amended, its Annual Reports on Form 10-K for the Year ended September 30,
2001, its Quarterly Report on Form 10-Q for the period ended December 31, 2001
and March 31, 2002, and its Current Report on Form 8-K dated April 25, 2000.
PART II - OTHER INFORMATION
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There is no information required to be reported under any items except those
indicated below.
Item 5 - Other Information
On May 29, 2002, the Company announced that Robert Pruzan, Co-Head of
Global Investment Banking, Dresdner Kleinwort Wasserstein, Inc. ("DrKW"), had
resigned from the Board of Directors of the Company because of the demands of
his position at DrKW.
Item 6 - Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 25, 2002, was filed setting forth the
text of a press release issued by the Company on the same date which discussed
the Company's results for its second fiscal quarter of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGIZER HOLDINGS, INC.
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Registrant
By: /s/ Daniel J. Sescleifer
Daniel J. Sescleifer
Executive Vice President and
Chief Financial Officer
Date: July 31, 2002