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<SEC-DOCUMENT>0001096752-02-000062.txt : 20021213
<SEC-HEADER>0001096752-02-000062.hdr.sgml : 20021213
<ACCEPTANCE-DATETIME>20021213145400
ACCESSION NUMBER: 0001096752-02-000062
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 12
CONFORMED PERIOD OF REPORT: 20020930
FILED AS OF DATE: 20021213
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ENERGIZER HOLDINGS INC
CENTRAL INDEX KEY: 0001096752
STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770]
IRS NUMBER: 431863181
STATE OF INCORPORATION: MO
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-15401
FILM NUMBER: 02856967
BUSINESS ADDRESS:
STREET 1: 533 MARYVILLE UNIVERSITY DRIVE
CITY: ST LOUIS
STATE: MO
ZIP: 63141
BUSINESS PHONE: 3149852161
MAIL ADDRESS:
STREET 1: 533 MARYVILLE UNIVERSITY DRIVE
CITY: ST LOUIS
STATE: MO
ZIP: 63141
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>doc1.txt
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2002 Commission File No. 001-15401
ENERGIZER HOLDINGS, INC.
Incorporated in Missouri IRS Employer Identification No. 43-1863181
533 Maryville University Drive, St. Louis, Missouri 63141
Registrant's telephone number, including area code: 314-985-2000
-----------------------------------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ---------------------- -----------------------------------------
Energizer Holdings, Inc. New York Stock Exchange, Inc.
Common Stock, par value
$.01 per share
Energizer Holdings, Inc. New York Stock Exchange, Inc.
Common Stock Purchase Rights
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:
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein and will not be contained, to the best of registrant's
knowledge, in the definitive proxy statement incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
Yes: No: X
Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities
Exchange Act of 1934).
Yes: X No:
Aggregate market value of the voting common equity held by nonaffiliates of the
Registrant as of the close of business on November 1, 2002: $2,478,695,724.
Aggregate market value of the voting common equity held by nonaffiliates of the
Registrant as of the close of business on March 31, 2002, the last day of the
Registrant's most recently completed second quarter: $2,053,805,689.
(Excluded from these figures is the voting stock held by Registrant's Directors
and Executive Officers, who are the only persons known to Registrant who may be
considered to be its "affiliates" as defined under Rule 12b-2. Registrant does
not have a class of non-voting equity securities.)
Number of shares of Energizer Holdings, Inc. Common Stock ("ENR Stock"), $.01
par value, outstanding as of close of business on December 1, 2002: 88,544,168.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Energizer Holdings, Inc. 2002 Annual Report (Parts I and II
of Form 10-K).
2. Portions of Energizer Holdings, Inc. Notice of Annual Meeting and Proxy
Statement dated December 9, 2002 (Part III of Form 10-K).
PART I
ITEM 1. BUSINESS.
GENERAL
Energizer Holdings, Inc., incorporated in Missouri in 1999, is one of the
world's largest manufacturers of primary batteries and flashlights and a global
leader in the dynamic business of providing portable power. On April 1, 2000,
all of the outstanding shares of common stock of Energizer were distributed in a
tax-free spinoff to shareholders of Ralston Purina Company.
Energizer is the successor to over 100 years of expertise in the battery
and lighting products industry. Its brand names "Eveready" and "Energizer" have
worldwide recognition for quality and dependability, and are marketed and sold
in more than 150 countries. Energizer's subsidiaries operate 21 manufacturing
and packaging facilities in 14 countries on four continents, and employ 3,535
employees in the United States and 6,428 in foreign jurisdictions.
PRINCIPAL PRODUCTS
Energizer's subsidiaries manufacture and market a complete line of primary
alkaline and carbon zinc batteries, miniature batteries, specialty photo lithium
batteries, and flashlights and other lighting products. Although Energizer,
in November of 1999, sold its rechargeable battery manufacturing and assembly
business, which produced rechargeable batteries for sale to manufacturers of
rechargeable equipment, Energizer continues to market a line of rechargeable
batteries for retail sale to consumers. Energizer believes it has one of the
industry's most extensive product lines. "Energizer" brand alkaline batteries
are the most popular and widely used in the array of Energizer products. The
batteries are offered in 1.5 volt, 4.5 volt, 6 volt and 9 volt configurations,
and are available in the standard selection of sizes, including AA, AAA, AAAA,
C, D and 9 volt sizes. In the summer of 2000, Energizer introduced a
super-premium alkaline battery under the brand name "Energizer e2", as well as a
value-priced alkaline battery under the name "Eveready Alkaline." In 2001, it
relaunched its base alkaline brand as "Energizer Max." Energizer also produces
or distributes:
- - "Energizer Industrial" batteries in three models targeted for non-consumer
industrial applications;
- - lithium batteries, available in AA, miniature and cylindrical sizes, for
use in high-performance applications such as cameras, camcorders, memory backup,
CD players and portable computers;
- - a line of miniature batteries, available in several chemistries, including
silver oxide, zinc-air and manganese dioxide systems, for use in electronic
watches, calculators, hearing aids, cameras, miniature radios, remote controls
and electronic thermometers;
- - the "Eveready" brand "Super Heavy Duty" and "Classic" lines of carbon zinc
batteries for economy applications; and
- - a line of rechargeable batteries and battery packs under the "Energizer"
brand name.
Energizer is also the world's largest manufacturer of portable lighting devices,
offering more than 60 different lighting products for consumer and industrial
use.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal raw materials used in the Energizer business - electrolytic
manganese dioxide, zinc, acetylene black, graphite, steel cans, nylon, brass
wire, separator paper, and potassium hydroxide -- are sourced on a regional or
global basis. Energizer believes that adequate supplies of the raw materials
required for its operations are available at the present time, but cannot
predict the future availability or prices of such materials. These raw
materials are generally available from a number of different sources, and the
prices of those raw materials are susceptible to currency fluctuations and price
fluctuations due to transportation, government regulations, price controls,
economic climate, or other unforeseen circumstances. In the past, Energizer has
not experienced any significant interruption in availability of raw materials.
Energizer's management has extensive experience in purchasing raw materials
in the commodity markets. From time to time, management has taken positions in
various ingredients to assure supply and to protect margins on anticipated sales
volume.
SALES AND DISTRIBUTION
Energizer's battery and lighting products are marketed primarily through a
direct sales force to mass merchandisers, wholesalers and other customers, but
also through exclusive and non-exclusive distributors and rack jobbers of
consumer packaged goods products. Third party food brokers may be used to make
headquarters contacts in the retail food industry and to merchandise Energizer's
products at retail locations. In the United States, the direct sales team has
been reorganized into a Customer Management Team focused on key business
accounts in several categories, including food, mass merchandise and specialty.
Energizer distributes its products to consumers through numerous retail
locations worldwide, including mass merchandisers and warehouse clubs, food,
drug and convenience stores, electronics specialty stores and department stores,
hardware and automotive centers and military stores.
Although a large percentage of Energizer's sales are attributable to a
relatively small number of retail customers, only Wal-Mart Stores, Inc. and its
subsidiaries, as a group, account for more than ten percent of Energizer's
sales. For fiscal year 2002, those customers accounted for, in the aggregate,
approximately 16.3% of Energizer's sales.
PATENTS, TECHNOLOGY AND TRADEMARKS
Energizer's operating subsidiaries own a number of trademarks which
Energizer considers of substantial importance and which are used individually or
in conjunction with other Energizer trademarks. These include "Eveready",
"Energizer", "Energizer Advanced Formula", "Energizer e2", "Energizer Max", the
Energizer Bunny and the Energizer Man character.
Energizer's ability to compete effectively in the battery industry depends
in part on its ability to maintain the proprietary nature of its technology and
manufacturing processes through a combination of patent and trade secret
protection, non-disclosure agreements, licensing, and cross-licensing
agreements. Energizer's subsidiaries own or license from third parties a
considerable number of patents, patent applications and other technology which
Energizer believes are extremely significant to its business. These primarily
relate to battery product and lighting device improvements, additional battery
product features, and manufacturing processes.
As of September 30, 2002, Eveready Battery Company, Inc., a subsidiary of
Energizer, owned approximately 283 unexpired United States patents which have a
range of expiration dates from December, 2002 to November, 2021, and had
approximately 99 United States patent applications pending. It routinely
prepares additional patent applications for filing in the United States.
Eveready also actively pursues foreign patent protection in a number of foreign
countries. As of September 30, 2002, Eveready owned approximately 710 foreign
patents and had approximately 499 patent applications pending in foreign
countries.
Since publications of discoveries in the scientific or patent literature
tends to lag behind actual discoveries by several months, Eveready cannot be
certain that it was the first creator of inventions covered by pending patent
applications or the first to file patent applications on such inventions.
SEASONALITY
The battery business, particularly in North America, tends to be seasonal,
with large purchases of batteries by consumers during the December holiday
season, and increases in retailer inventories during late summer and autumn.
COMPETITION
The battery business is highly competitive, both in the United States and
on a global basis, as a number of large battery manufacturers compete for
consumer acceptance and, increasingly, limited retail shelf space. Competition
is based upon brand perceptions, product performance, customer service and
price.
Energizer competes in the domestic and global battery markets which have
been, in the past, high growth markets. The alkaline battery segment, both in
the United States and worldwide, has been the fastest growing segment of the
primary battery market. More recently, growth of the battery market, as well as
the alkaline segment, has moderated and in some instances declined, primarily
because of local economic conditions. Energizer's principal competitors in the
United States are Duracell International, Inc., a subsidiary of The Gillette
Company, and Rayovac Corporation. Private-label sales by large retailers have
also been growing in significance. Duracell and Panasonic are significant
competitors in South and Central America, Asia and Europe, and local and
regional battery manufacturers in Asia and Europe also compete for battery
sales.
Energizer has a significant market position in most geographic markets in
which it competes.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The operations of Energizer, like those of other companies engaged in the
battery business, are subject to various federal, state, foreign and local laws
and regulations intended to protect the public health and the environment.
These regulations primarily relate to worker safety, air and water quality,
underground fuel storage tanks and waste handling and disposal.
Energizer has received notices from the U.S. Environmental Protection
Agency, state agencies, and/or private parties seeking contribution, that it has
been identified as a "potentially responsible party" (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act, and may be
required to share in the cost of cleanup with respect to eight federal
"Superfund" sites. It may also be required to share in the cost of cleanup
with respect to a state-designated site. Liability under the applicable federal
and state statutes which mandate cleanup is strict, meaning that liability may
attach regardless of lack of fault, and joint and several, meaning that a liable
party may be responsible for all of the costs incurred in investigating and
cleaning up contamination at a site. However, liability in such matters is
typically shared by all of the financially viable responsible parties, through
negotiated agreements. Negotiations with the U.S. Environmental Protection
Agency, the state agency that is involved on the state-designated site, and
other PRP's are at various stages with respect to the sites. Negotiations
involve determinations of the actual responsibility of Energizer and the other
PRP's at the site, appropriate investigatory and/or remedial actions, and
allocation of the costs of such activities among the PRP's and other site users.
The amount of Energizer's ultimate liability in connection with those sites
may depend on many factors, including the volume and toxicity of material
contributed to the site, the number of other PRP's and their financial
viability, and the remediation methods and technology to be used.
In addition, Energizer undertook certain programs to reduce or eliminate
the environmental contamination at the rechargeable battery facility in
Gainesville, Florida, which was divested in November, 1999. Responsibility for
those programs was assumed by the buyer at the time of the divestiture. In
2001, the buyer, as well as its operating subsidiary which owns and operates the
Gainesville facility, filed petitions in bankruptcy. In the event that the
buyer and its affiliates become unable to continue the programs to reduce or
eliminate contamination, Energizer could be required to bear financial
responsibility for such programs as well as for other known and unknown
environmental conditions at the site. Under the terms of the Reorganization
Agreement between Energizer and Ralston Purina Company, however, which has been
assumed by an affiliate of The Nestle Corporation, Ralston's successor is
obligated to indemnify Energizer for 50% of any such liabilities in excess of $3
million.
Many European countries, as well as the European Union, have been very
active in adopting and enforcing environmental regulations. In many developing
countries in which Energizer operates, there has not been significant
governmental regulation relating to the environment, occupational safety,
employment practices or other business matters routinely regulated in the United
States. As such economies develop, it is possible that new regulations may
increase the risk and expense of doing business in such countries.
Accruals for environmental remediation are recorded when it is probable
that a liability has been incurred and the amount of the liability can be
reasonably estimated, based on current law and existing technologies. These
accruals are adjusted periodically as assessments take place and remediation
efforts progress, or as additional technical or legal information becomes
available.
It is difficult to quantify with certainty the potential financial impact
of actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available,
Energizer believes that its ultimate liability arising from such environmental
matters, taking into account established accruals of $7 million for estimated
liabilities at September 30, 2002, should not be material to its financial
position. Such liability could, however, be material to results of operations or
cash flows for a particular quarter or year.
AVAILABLE INFORMATION
Energizer regularly files periodic reports with the Securities and Exchange
Commission ("SEC"), including annual reports on Form 10-K and quarterly reports
on Form 10-Q, as well as, from time to time, current reports on Form 8-K, and
amendments to those reports. These filings are available free of charge on
Energizer's website, at www.energizer.com, as soon as reasonably practicable
-----------------
after their electronic filing with the SEC.
OTHER MATTERS
The descriptions of the business of, and the summary of selected financial
data regarding Energizer appearing under "ENERGIZER HOLDINGS, INC. -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - BUSINESS OVERVIEW" on page 10, "ENERGIZER HOLDINGS, INC. -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - HIGHLIGHTS" on page 11, "ENERGIZER HOLDINGS, INC. - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -
LIQUIDITY AND CAPITAL RESOURCES" on pages 14 through 15, "ENERGIZER HOLDINGS,
INC. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - OPERATING RESULTS - Segment Results" on pages 11 through
12, "ENERGIZER HOLDINGS, INC. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION - OPERATING RESULTS - Research and
Development Expense" on page 13, "ENERGIZER HOLDINGS, INC. - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS - Segment Information" on pages 42 through 43,
of the Energizer Holdings, Inc. 2002 Annual Report to Shareholders, are hereby
incorporated by reference.
ITEM 2. PROPERTIES
A list of Energizer's principal plants and facilities as of the date of
filing follows. Energizer believes that such plants and facilities, in the
aggregate, are adequate, suitable and of sufficient capacity for purposes of
conducting its current business. During the fiscal year ended September 30,
2002, Energizer's alkaline manufacturing facilities were utilized, on average,
at approximately 78% of capacity, and its carbon zinc facilities were utilized,
on average, at approximately 66% of capacity.
NORTH AMERICA EUROPE
Asheboro, NC (2) Caudebec Les Elbeuf, France (1)(5)
Bennington, VT La Chaux-de-Fonds, Switzerland
Garretsville, OH Slany, Czech Republic (1)
Marietta, OH Tanfield Lea, U.K. (1)
Maryville, MO
St. Albans, VT AFRICA
Walkerton, Ontario, Canada (5 Alexandria, Egypt
Westlake, OH (3) Nakuru, Kenya (4)
ASIA ADMINISTRATIVE AND
Bogang, People's Republic of China (1) EXECUTIVE OFFICES
Mandaue Cebu, Philippines St. Louis, Missouri (1)
Ekala, Sri Lanka
Cimanggis, Indonesia
Johor, Malaysia
Jurong, Singapore
Tianjin, People's Republic of China
In addition to the properties identified above, Energizer and its subsidiaries
own and/or operate sales offices, regional offices, storage facilities,
distribution centers and terminals and related properties.
(1) Leased (2) Two plants (3)Research facility
(4) Less than 20% owned interest (5) Bulk packaging or labeling
ITEM 3. LEGAL PROCEEDINGS
Energizer and its subsidiaries are parties to a number of legal proceedings
in various jurisdictions arising out of the operations of the Energizer
business. Many of these legal matters are in preliminary stages and involve
complex issues of law and fact, and may proceed for protracted periods of time.
The amount of liability, if any, from these proceedings cannot be determined
with certainty. However, based upon present information, Energizer believes
that its ultimate liability, if any, arising from pending legal proceedings,
asserted legal claims and known potential legal claims which are likely to be
asserted, should not be material to Energizer's financial position, taking into
account established accruals for estimated liabilities. These liabilities,
however, could be material to results of operations or cash flows for a
particular quarter or year.
See also the discussion captioned "Governmental Regulation and
Environmental Matters" under Item 1 above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT.
A list of the executive officers of Energizer and their business experience
follows. Ages shown are as of December 31, 2002.
J. PATRICK MULCAHY - Chief Executive Officer of Energizer since March, 2000.
Mr. Mulcahy joined Ralston Purina Company in 1968 and has served as Chairman of
the Board and Chief Executive Officer of Eveready Battery Company, Inc. since
1987. Mr. Mulcahy served as co-Chief Executive Officer and co-President of
Ralston Purina Company from October, 1997 to June, 1999. He served as Ralston's
Vice President and Director, Corporate Strategic Planning and Administration
1984-86; Division Vice President, Strategic Planning 1981-84; and Division Vice
President, Director of Marketing, Grocery Products Group, 1980-81. Age: 58.
WILLIAM P. STIRITZ - Chairman of the Board of Directors of Energizer and
Chairman of the Management Strategy and Finance Committee since March, 2000.
Mr. Stiritz joined Eveready Battery Company, Inc. in 2000, at the time of the
Company's spin-off from Ralston Purina Company. From 1982 to 1997, he served as
Chief Executive Officer and Chairman of the Board of Ralston Purina Company, and
from 1998 to 2001, he served as Chief Executive Officer, President and Chairman
of the Board of Agribrands International, Inc. Age: 68.
PATRICK C. MANNIX - President of Energizer since March, 2000. Mr. Mannix joined
the Eveready Battery Division of Union Carbide Corporation in 1963, and has
served as President of Eveready Battery Company, Inc. since 1998. Mr. Mannix
served as President of Eveready Battery Company, Inc., Specialty Business from
1995-98, as Executive Vice President, Eveready Battery Company, International
from 1991-95, and as Area Chairman, Asia Pacific operations, Eveready Battery
Company from 1985-91. Age: 57.
WARD M. KLEIN - President, International since March, 2002. Mr. Klein joined
Ralston Purina Company in 1979. Prior to his current position he served as
President and Chief Operating Officer - Asia Pacific and PanAm from 2000 to
2002, as Vice President - Asia Pacific for Energizer from March to September,
2000, as Vice President and Area Chairman, Asia Pacific, Africa and Middle East
for battery operations from 1998 to 2000, as Area Chairman, Latin America from
1996-98, as Vice President, General Manager Global Lighting Products, 1994-96
and as Vice President of Marketing, 1992-94. Age: 47.
JOSEPH MCCLANATHAN - President, North America since March, 2002. Mr.
McClanathan joined the Eveready Battery division of Union Carbide Corporation in
1974. Prior to his current position, he served as Vice President, North America
of Energizer from 2000 to 2002, as Vice President and Chairman, North America of
Eveready Battery Company, Inc. from 1999 to 2000, as Vice President, Chief
Technology Officer from 1996 to 1999, and as Vice President, General Manager,
Energizer Power Systems division from 1993 to 1996. Age: 50.
DANIEL J. SESCLEIFER - Executive Vice President, Finance and Control of
Energizer since October, 2000. Mr. Sescleifer served as Vice President and
Treasurer of Solutia Inc. from July-October, 2000, as Vice President and
Treasurer of Ralcorp Holdings, Inc, from 1996 to 2000, and as Director,
Corporate Finance of Ralcorp Holdings, Inc. from 1994 to 1996. Age: 40.
HARRY L. STRACHAN - Vice President and General Counsel of Energizer since March,
2000. Mr. Strachan joined Eveready Battery Company, Inc. in 1987, and, prior to
his current position, served as Vice President, General Counsel and Secretary of
that subsidiary from 1987 to 2000. Age: 61.
PETER J. CONRAD - Vice President, Human Resources of Energizer since March,
2000. Mr. Conrad joined Eveready Battery Company, Inc. in 1997. Prior to his
current position, he served as Vice President, Human Resources from 1997 to
2000. Mr. Conrad served as Vice President, Human Resources for Protein
Technologies International, Inc., a former subsidiary of Ralston Purina Company,
from 1995-97. Age: 42.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Energizer's common stock ("ENR Stock") is listed on the New York Stock
Exchange. As of November 1, 2002, there were 16,750 shareholders of record of
the ENR Stock.
The following table sets forth the range of market prices for the ENR Stock
for the period from September 30, 2000 to September 30, 2002. No dividends were
declared or paid on the ENR Stock during that period, and the Company does not
currently intend to pay dividends during fiscal year 2003.
<TABLE>
<CAPTION>
MARKET PRICE RANGE
FY2002 FY2001
<S> <C> <C>
First Quarter. $15.52 - $19.05 $17.0625 - $24.375
Second Quarter $18.98 - $23.75 $20.125 - $27.55
Third Quarter. $22.23 - $29.34 $20.80 - $25.39
Fourth Quarter $21.40 - $31.90 $15.00 - $23.35
</TABLE>
There have been no unregistered offerings of registrant's equity securities
during the period covered by this Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA.
The "ENERGIZER HOLDINGS, INC. - SUMMARY SELECTED HISTORICAL FINANCIAL
INFORMATION" appearing on page 19 of the Energizer Holdings, Inc. 2002 Annual
Report is hereby incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information appearing under "ENERGIZER HOLDINGS, INC. - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" on
pages 10 through 18 and the information appearing under "ENERGIZER HOLDINGS, INC
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Segment Information" on pages 42
through 43 of the Energizer Holdings, Inc. 2002 Annual Report is hereby
incorporated by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Information appearing under "ENERGIZER HOLDINGS, INC. - MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS" on pages 16 through 17 of the
Energizer Holdings, Inc. 2002 Annual Report is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of Energizer and its subsidiaries
appearing on pages 21 through 24, together with the report thereon of
PricewaterhouseCoopers LLP on page 20, and the supplementary data under
"ENERGIZER HOLDINGS, INC. - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -
Quarterly Financial Information (Unaudited)" on page 44 of the Energizer
Holdings, Inc. 2002 Annual Report are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors on pages 3 through 6 of the Energizer
Holdings, Inc. Notice of Annual Meeting and Proxy Statement dated December 9,
2002 is hereby incorporated by reference.
The rules of the Securities and Exchange Commission require that the
Company disclose late filings of reports of stock ownership and changes in stock
ownership by its directors and executive officers. Mr. F. Sheridan Garrison
inadvertently failed to file a Form 4 for the month of November, 2001 to
disclose an acquisition of Energizer Stock, but corrected it by a late Form 4
for that month, which was filed on January 4, 2002. As a result of a Company
clerical error, Mr. Daniel Sescleifer and Mr. Joseph McClanathan both
inadvertently failed to disclose an employee option grant on September 23, 2002,
but each corrected it by a late Form 4 filing on November 5, 2002. To the best
of the Company's knowledge, all of the filings for the Company's other executive
officers and directors were made on a timely basis in 2002.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under "Executive Compensation" on pages 11 through
19, "Nominating and Executive Compensation Committee Report on Executive
Compensation" on pages 19 through 23, "Performance Graph" on page 25, "Common
Stock Ownership of Directors and Executive Officers" on pages 9 through 10, and
the remuneration information under "Board of Directors Standing Committees" on
pages 4 through 5 and "Director Compensation" on pages 5 through 6 of the
Energizer Holdings, Inc. Company Notice of Annual Meeting and Proxy Statement
dated December 9, 2002 is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The discussion of the security ownership of certain beneficial owners and
management appearing under "Stock Ownership Information" on page 8 and "Common
Stock Ownership of Directors and Executive Officers" on pages 9 through 10 of
the Energizer Holdings, Inc. Notice of Annual Meeting and Proxy Statement dated
December 9, 2002 is hereby incorporated by reference.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PLAN CATEGORY (A) (B) (C)
NUMBER OF SECURITIES WEIGHTED-AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE
EXERCISE OF OUTSTANDING OPTIONS, FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS UNDER EQUITY
WARRANTS AND RIGHTS COMPENSATION PLANS
(EXCLUDING SECURITIES
REFLECTED IN COLUMN
(A), AND AS NOTED
BELOW.)
- -------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders. . . 7,693,248 $18.14 6,104,598
- -------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders. . None NA None
- -------------------------------------------------------------------------------------------
Total . . . . . . . . 7,693,248 $18.14 6,104,598
- -------------------------------------------------------------------------------------------
</TABLE>
Note: in addition to the number of securities to be issued upon exercise of
outstanding options, warrants and rights shown above, 655,000 restricted stock
equivalents, as well as the opportunity to receive 20,000 restricted stock
equivalents, have been granted under the terms of the shareholder-approved
Energizer Holdings, Inc. 2000 Incentive Stock Plan, Energizer's only equity
compensation plan, other than benefit plans intended to meet the qualification
requirements of Section 401(a) of the Internal Revenue Code. These equivalents
vest over a three-year period following grant, and at that time, convert, on a
one-for-one basis, into shares of ENR Stock, unless the recipient elected, in
advance, to defer conversion until retirement or termination of employment. The
number of securities indicated in column (c) reflects not only the exclusion of
securities which will be issued upon exercise of outstanding options, warrants
and rights, but also the exclusion of securities which will be issued upon
conversion of restricted stock equivalents which have been granted, or for which
an opportunity to receive such equivalents has been granted.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Relationships and Related
Transactions" on pages 6 through 7 of the Energizer Holdings, Inc. Notice of
Annual Meeting and Proxy Statement dated December 9, 2002, is hereby
incorporated by reference.
PART IV
ITEM 14. CONTROLS AND PROCEDURES.
J. Patrick Mulcahy, Energizer's Chief Executive Officer, and Daniel J.
Sescleifer, Energizer's Executive Vice President and Chief Financial Officer,
evaluated Energizer's disclosure controls and procedures within 90 days of the
filing date of this Annual Report on Form 10-K, and determined that such
controls and procedures were effective and sufficient to ensure compliance with
applicable laws and regulations regarding appropriate disclosure in the Annual
Report, and that there were no material weaknesses in those disclosure controls
and procedures. They have also indicated that there were no significant changes
in internal controls or other factors that could significantly affect internal
controls subsequent to the date of their most recent evaluation of disclosure
controls and procedures, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
1. Documents filed with this report:
a. Financial statements previously incorporated by reference under Item 8
herein.
-Report of Independent Accountants.
-Consolidated Statement of Earnings--for years ended September 30, 2002,
2001 and 2000.
-Consolidated Balance Sheet -- at September 30, 2002 and 2001.
-Consolidated Statement of Cash Flows -- for years ended September 30, 2002,
2001, and 2000.
-Consolidated Statement of Shareholders Equity--at September 30, 2002, 2001
and 2000.
-Notes to Financial Statements.
b. Reports on Form 8-K.
No Current Reports on Form 8-K were filed by the Company during its fourth
fiscal quarter ending September 30, 2002.
c. Exhibits Required by Item 601 of Regulation S-K
(i) The following exhibits (listed by numbers corresponding to the Exhibit
Table of Item 601 in Regulation S-K) are hereby incorporated by reference
to Energizer's Post-Effective Amendment No. 1 to Form 10, filed April 19,
2000.
2 Agreement and Plan of Reorganization
3(i) Articles of Incorporation of Energizer Holdings, Inc.
3(ii) By-Laws of Energizer Holdings, Inc.
4 Rights Agreement between Energizer Holdings, Inc. and Continental
Stock Transfer & Trust Company, as Rights Agent
10(i) Debt Assignment, Assumption and Release Agreement by and among
Ralston Purina Co., Energizer Holdings, Inc. and Bank One, N.A.
10(ii) 364-Day Credit Agreement between Ralston Purina Company and Bank
One, N.A.
10(iii) 5-Year Revolving Credit Agreement between Ralston Purina Company
and Bank One, N.A.
10(iv) Energizer Holdings, Inc. Private Placement Note Purchase Agreement
10(v) Asset Securitization Receivable Purchase Agreement between
Energizer Holdings, Inc., Falcon Asset Securitization Corporation
and Bank One, N.A.
10(vi) Bridge Loan Agreement No. 1
10(vii) Bridge Loan Agreement No. 2
10(viii)Tax Sharing Agreement
10(ix) Bridging Agreement
10(x) Intellectual Property Agreement
10(xi) Energizer Holdings, Inc. Incentive Stock Plan*
10(xii) Form of Indemnification Agreements with Executive Officers and
Directors *
10(xiii)Executive Savings Investment Plan*
10(xiv) Executive Health Insurance Plan*
10(xv) Executive Long Term Disability Plan*
10(xvi) Financial Planning Plan*
10(xvii)Executive Group Personal Excess Liability Insurance Plan*
10(xviii)Executive Retiree Life Plan*
10(xix) Supplemental Executive Retirement Plan*
(ii) The following exhibits (listed by numbers corresponding to the Exhibit
Table of Item 601 in Regulation S-K) are hereby incorporated by reference
to Energizer's Quarterly Report on Form 10Q for the Quarter Ended June 30,
2000.
10(i) Form of Non-Qualified Stock Option dated May 8, 2000*
10(ii) Form of Non-Qualified Stock Option dated May 8, 2000*
10(iii) Form of Non-Qualified Stock Option dated May 8, 2000*
10(iv) Form of 2000 Restricted Stock Equivalent Award Agreement dated
May 8, 2000*
10(v) Form of 2000 Restricted Stock Equivalent Award Agreement dated
May 8, 2000*
10(vi) Form of 2000 Restricted Stock Equivalent Award Agreement dated
May 8, 2000*
(iii) The following exhibits (listed by numbers corresponding to the Exhibit
Table of Item 601 in Regulation S-K) are hereby incorporated by reference
to Energizer's Annual Report on Form 10K for the Year Ended September 30,
2000.
10(i) Form of Non-Qualified Stock Option dated September 18, 2000*
10(ii) Form of 2000 Restricted Stock Equivalent Award Agreement dated
September 18, 2000*
10(iii) Energizer Holdings, Inc. Non-Qualified Deferred Compensation Plan,
as amended September 18, 2000*
10(iv) Form of Letter for Deferral of 2000 Bonus Award dated 3/30/00*
10(v) Form of Letter for Deferral of 2000 Bonus Award dated 12/6/00*
10(vi) Form of Indemnification Agreement*
(iv) The following exhibits (listed by numbers corresponding to the Exhibit
Table of Item 601 in Regulation S-K) are hereby incorporated by reference
to Energizer's Quarterly Report on Form 10Q for the Quarter Ended December
31, 2000.
10(i) Form of Non-Qualified Stock Option dated November 20, 2000*
10(ii) Form of 2000 Restricted Stock Equivalent Agreement dated
November 20, 2000*
(v) The following exhibits (listed by numbers corresponding to the Exhibit
Table of Item 601 in Regulation S-K) are hereby incorporated by reference
to Energizer's Annual Report on Form 10K for the Year Ended September 30,
2001.
10(i) Amended Change of Control Employment Agreement dated November 19,
2001*
10(ii) Revised Negotiated Employment Agreement and General Release*
10(iii) Form of Energizer Holdings, Inc. Deferred Compensation Plan 2001
Election Form*
10(iv) Form of Acknowledgement for Deferral of Fiscal Year 2001 Incentive
Plan Bonus*
(vi) The following exhibit (listed by numbers corresponding to the Exhibit Table
of Item 601 in Regulation S-K) is hereby incorporated by reference to
Energizer's Quarterly Report on Form 10Q for the Quarter Ended March 31,
2002.
10(i) Negotiated Employment Agreement and General Release with former
executive officer*
(vii) The following exhibits (listed by numbers corresponding to the Exhibit
Table of Item 601 in Regulation S-K) are filed with this report.
10(i) Form of Non-Qualified Stock Option dated September 23, 2002*
10(ii) Form of Non-Qualified Stock Option dated September 23, 2002*
10(iii) Form of 2000 Restricted Stock Equivalent Award Agreement dated
September 23, 2002*
10(iv) Form of Indemnification Agreement dated October 15, 2002*
10(v) Form of Energizer Holdings, Inc. Deferred Compensation Plan 2002
Election Form*
10(vi) Form of Acknowledgement for Deferral of Fiscal Year 2002 Incentive
Plan Bonus*
13 Pages 10 to 44 of the Energizer Holdings, Inc. 2002 Annual Report,
which are incorporated herein by reference, are filed herewith
21 Subsidiaries of Registrant
23 Consent of Independent Accountants
99.1 Certification of Chief Executive Officer
99.2 Certification of Executive Vice President and Chief Financial
Officer
*Denotes a management contract or compensatory plan or arrangement.
FINANCIAL STATEMENT AND SCHEDULES
The consolidated financial statements of the Registrant have been
incorporated by reference under Item 8. Financial statements of the
Registrant's 50% or less owned companies have been omitted because, in the
aggregate, they are not significant.
Schedules not included have been omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By/s/ J. Patrick Mulcahy
J. Patrick Mulcahy
Chief Executive Officer
Date: December 13, 2002
SIGNATURE TITLE
- --------- -----
/s/ Daniel J. Sescleifer
- ---------------------------
Daniel J. Sescleifer
Executive Vice President and Chief Financial Officer
/s/ Mark A. Schafale
- -----------------------
Mark A. Schafale
Vice President and Controller
/s/ William P. Stiritz
- -------------------------
William P. Stiritz
Chairman of the Board of Directors
/s/ William H. Danforth
- --------------------------
Dr. William H. Danforth
Director
/s/ F. Sheridan Garrison
- ---------------------------
F. Sheridan Garrison
Director
/s/ R. David Hoover
- ----------------------
R. David Hoover
Director
/s/ H. Fisk Johnson
- ----------------------
H. Fisk Johnson
Director
/s/ Richard A. Liddy
- -----------------------
Richard A. Liddy
Director
/s/ W. Patrick McGinnis
- ------------------------
W. Patrick McGinnis
Director
/s/ Joe R. Micheletto
- ------------------------
Joe R. Micheletto
Director
/s/ Pamela M. Nicholson
- ------------------------
Pamela M. Nicholson
Director
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
- ---------------------------------------------
I, J. Patrick Mulcahy, certify that:
1. I have reviewed this annual report on Form 10-K of Energizer Holdings, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 13, 2002
/s/ J. Patrick Mulcahy
- -------------------------
J. Patrick Mulcahy
Chief Executive Officer
CERTIFICATION OF EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
- -----------------------------------------------------------------------------
I, Daniel Sescleifer, certify that:
1. I have reviewed this annual report on Form 10-K of Energizer Holdings, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: December 13, 2002
/s/ Daniel J. Sescleifer
- ---------------------------
Daniel J. Sescleifer
Executive Vice President and Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>doc2.txt
<TEXT>
NON-QUALIFIED STOCK OPTION
--------------------------
ENERGIZER HOLDINGS, INC. (the "Company"), effective September 23, 2002,
grants this Non-Qualified Stock Option to _______________ ("Optionee") to
purchase a total of _______ shares of Common Stock of the Company ("Common
Stock") at a price of $30.10 per share pursuant to its Energizer Holdings, Inc.
2000 Incentive Stock Plan (the "Plan"). Subject to the provisions of the Plan
and the following terms, Optionee may exercise this Option from time to time by
tendering to the Company written notice of exercise together with the purchase
price in cash, or in shares of Common Stock at their Fair Market Value as
determined by the Nominating and Executive Compensation Committee (the
"Committee"), provided that such shares have been held for at least six months.
1. Normal Exercise. This Option becomes exercisable at the rate of 33 1/3%
----------------
of the total shares on September 23 in each of the years 2005, 2006 and 2007.
This Option remains exercisable through September 22, 2012 unless Optionee is no
longer employed by the Company, in which case the Option is exercisable only in
accordance with the provisions of paragraph 3 below.
2. Acceleration. Notwithstanding the above, any shares not previously
------------
forfeited under this Option will become fully exercisable before the normal
exercise dates set forth in paragraph 1 hereof upon the occurrence of any of the
following events while Optionee is employed by the Company:
a. death of Optionee;
b. declaration, by the Committee, of Optionee's total and permanent
disability;
c. the voluntary termination of employment of Optionee at or after age
55;
d. a Change of Control; or
e. the involuntary termination of employment of Optionee, other than a
Termination for Cause. For purposes of this Option, involuntary termination
shall include (i) Optionee's involuntary termination of employment with the
Company or an Affiliate which employs Optionee; or (ii) the sale or other
disposition of a majority of the stock or assets of an Affiliate which employs
Optionee. In no event shall transfers of employment between the Company and any
of its Affiliates, or the creation of a class of stock of the Company which
tracks the performance of an Affiliate, be deemed to constitute an involuntary
termination of employment.
3. Exercise After Certain Events. Upon the occurrence of any of the events
------------------------------
described below, any shares that are exercisable at that time shall remain
exercisable during the period stated below, but, in any event, not later than
September 22, 2012:
a. If Optionee's employment is terminated due to declaration of total
and permanent disability, death, or voluntary or involuntary termination of
employment (other than a Termination for Cause), such shares that are
exercisable (including any shares that are accelerated because of such events)
shall remain exercisable for five years thereafter; or
b. If Optionee's employment is Terminated for Cause, or if the
Committee determines that this Option is forfeit pursuant to Section IV of the
Plan because Optionee engages in competition with the Company or an Affiliate,
or Optionee engages in any activity or conduct contrary to the best interests of
the Company or any Affiliate, such shares that are then exercisable shall remain
exercisable for seven days after such Termination or determination.
4. Forfeiture. This Option is subject to forfeiture for the reasons set
----------
forth in Section IV.A.1, 3 or 4 of the Plan. If there is a declaration of
forfeiture, those shares that are exercisable at the time of the declaration may
be exercised as set forth in paragraph 3 above; all other shares are forfeited.
5. Definitions. Unless otherwise defined in this Non-Qualified Stock
-----------
Option, defined terms used herein shall have the same meaning as set forth in
the Plan.
"Change of Control" shall occur when (i) a person, as defined under
securities laws of the United States, acquires beneficial ownership of more than
50% of the outstanding voting securities of the Company; or (ii) the directors
of the Company immediately before a business combination between the Company and
another entity, or a proxy contest for the election of directors, shall, as a
result thereof, cease to constitute a majority of the Board of Directors of the
Company of any successor to the Company.
6. Severability. The invalidity or unenforceability of any provision hereof
-------------
in any jurisdiction shall not affect the validity or enforceability of the
remainder hereof in that jurisdiction, or the validity or enforceability of this
Non-Qualified Stock Option, including that provision, in any other jurisdiction.
To the extent permitted by applicable law, the Company and Optionee each waive
any provision of law that renders any provision hereof invalid, prohibited or
unenforceable in any respect. If any provision of this Option is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
ACKNOWLEDGED AND ACCEPTED: ENERGIZER HOLDINGS, INC.
____________________________
Optionee
By:_________________________
____________________________ J. Patrick Mulcahy
Date Chief Executive Officer
<PAGE>
List of Recipients
Joseph W. McClanathan, Vice President, North America
Daniel J. Sescleifer, Executive Vice President and Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>doc3.txt
<TEXT>
NON-QUALIFIED STOCK OPTION
--------------------------
ENERGIZER HOLDINGS, INC. (the "Company"), effective September 23, 2002,
grants this Non-Qualified Stock Option to __________ ("Optionee") to purchase a
total of 10,000 shares of Common Stock of the Company ("Common Stock") at a
price of $30.10 per share pursuant to its Energizer Holdings, Inc. 2000
Incentive Stock Plan (the "Plan"). Subject to the provisions of the Plan and
the following terms, Optionee may exercise this Option from time to time by
tendering to the Company written notice of exercise together with the purchase
price in cash, or in shares of Common Stock at their Fair Market Value as
determined by the Board of Directors of the Company (the "Board"), provided that
such shares have been held for at least six months.
1. Normal Exercise. This Option becomes exercisable at the rate of 20% of
----------------
the total shares on September 18 in each of the years 2003, 2004, 2005, 2006 and
2007. This Option remains exercisable through September 22, 2012 unless
Optionee is no longer serving as a Director of the Company, in which case the
Option is exercisable only in accordance with the provisions of paragraph 3
below.
2. Acceleration. Notwithstanding the above, any shares not previously
------------
forfeited under this Option will become fully exercisable before the normal
exercise dates set forth in paragraph 1 hereof upon the occurrence of any of the
following events while Optionee is serving on the Board:
a. death of Optionee;
b. declaration of Optionee's total and permanent disability;
c. retirement, resignation or other termination from the Board; or
d. a Change of Control of the Company.
3. Exercise After Certain Events. Upon the occurrence of any of the events
------------------------------
described below, any shares that are exercisable upon such occurrence shall
remain exercisable during the period stated below, but, in any event, not later
than September 22, 2012:
a. Upon Optionee's retirement, resignation or other termination from
the Board (other than a termination related to a declaration of forfeiture as
described below), declaration of total and permanent disability or death, such
shares that are exercisable (including any shares that are accelerated because
of such events) shall remain exercisable for five years thereafter; or
b. If the Board determines that this Option is forfeit pursuant to
Section IV of the Plan because Optionee engages in competition with the Company
or an Affiliate, or Optionee engages in any activity or conduct contrary to the
best interests of the Company or any Affiliate, such shares that are then
exercisable shall remain exercisable for seven days after such determination.
4. Forfeiture. This Option is subject to forfeiture for the reasons set
----------
forth in Section IV.A.1, 3 or 4 of the Plan. If there is a declaration of
forfeiture, those shares that are exercisable at the time of the declaration may
be exercised as set forth in paragraph 3 hereof; all other shares are forfeited.
5. Definitions. Unless otherwise defined in this Non-Qualified Stock
-----------
Option, defined terms used herein shall have the same meaning as set forth in
the Plan.
"Change of Control" shall occur when (i) a person, as defined under
securities laws of the United States, acquires beneficial ownership of more than
50% of the outstanding voting securities of the Company; or (ii) the directors
of the Company immediately before a business combination between the Company and
another entity, or a proxy contest for the election of directors, shall, as a
result thereof, cease to constitute a majority of the Board of Directors of the
Company of any successor to the Company.
6. Severability. The invalidity or unenforceability of any provision hereof
-------------
in any jurisdiction shall not affect the validity or enforceability of the
remainder hereof in that jurisdiction, or the validity or enforceability of this
Non-Qualified Stock Option, including that provision, in any other jurisdiction.
To the extent permitted by applicable law, the Company and Optionee each waive
any provision of law that renders any provision hereof invalid, prohibited or
unenforceable in any respect. If any provision of this Option is held to be
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
ACKNOWLEDGED AND ACCEPTED: ENERGIZER HOLDINGS, INC.
____________________________
Optionee
By:_________________________
____________________________ J. Patrick Mulcahy
Date Chief Executive Officer
List of Recipients
Pamela M. Nicholson, Director
W. Patrick McGinnis, Director
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>doc4.txt
<TEXT>
2002 RESTRICTED STOCK EQUIVALENT AWARD AGREEMENT
Energizer Holdings, Inc. ("Company"), pursuant to its 2000 Incentive Stock
Plan (the "Plan"), grants to _______ ("Recipient") a Restricted Stock Equivalent
Award of up to 10,000 Company restricted common stock equivalents. This Award
Agreement is subject to the provisions of the Plan and to the following terms
and conditions:
1. Restricted Stock Equivalents Award
-------------------------------------
If, at any time or from time to time, within two years of the effective date of
this Award Agreement, Recipient provides evidence to the Secretary of the
Company, reasonably satisfactory to the Company, of his acquisition of shares of
the Company's $.01 par value Common Stock ("Common Stock"), the Company will
credit the Recipient with a restricted common stock equivalent (an "Equivalent")
for each share of Common Stock so acquired, up to a maximum of 10,000
Equivalents, in the aggregate. (The shares of Common Stock which are acquired
by the Recipient and matched by Equivalents are referred to as "Matched Common
Stock" herein.) Deferrals into the Company's Deferred Compensation Plan will not
be matched with Equivalents.
2. Holding Period for Matched Common Stock
--------------------------------------------
The Recipient agrees that he shall not sell or transfer any portion of the
Matched Common Stock for a period of three (3) years following the date of
acquisition of such portion, provided, however, that if Recipient pledges any of
the Matched Common Stock as collateral for any loan during that period, it shall
not be deemed a sale or transfer of the shares for purposes of this Award
Agreement.
3. Vesting; Payment
-----------------
Each Equivalent will vest on the date that is three (3) years from the date of
its crediting and convert, at that time, or otherwise as provided herein, into
one share of Common Stock which will be issued to the Recipient. If Recipient,
no later than thirty (30) days from the effective date of this Award Agreement,
elects in writing to defer the conversion of Equivalents into shares of Common
Stock, the Equivalents will not convert into Common Stock, and shares of Common
Stock will not be issued to the Recipient, until the Recipient's termination of
service on the Board of Directors of the Company.
4. Additional Cash Payment
-------------------------
At the time of payment of shares of Common Stock to Recipient, as described in
paragraph 3 above, Recipient will also receive an additional cash payment equal
to the amount of dividends, if any, which would have been paid on the shares of
Common Stock issued to him if he had actually acquired those shares on the date
or dates of crediting of his Equivalents. No interest shall be included in the
calculation of such additional cash payment.
5. Acceleration
------------
Notwithstanding the provisions of paragraph 3 above, all Equivalents credited to
the Recipient will immediately vest, convert into shares of Common Stock and be
paid to the Recipient, his designated beneficiary, or his legal representative,
in accordance with the terms of the Plan, in the event of:
(a) his death;
(b) a declaration of his total and permanent disability; or
(c) a Change of Control of the Company, which for purposes of this Award
Agreement shall be deemed to occur when (i) a person, as defined under the U.S.
securities laws, acquires beneficial ownership of more than fifty percent (50%)
of the outstanding voting securities of the Company; or (ii) the directors of
the Company immediately before a business combination between the Company and
another entity, or a proxy contest for the election of directors, shall, as a
result thereof, cease to constitute a majority of the Board of Directors of the
Company (or a successor corporation of the Company).
6. Forfeiture
----------
All rights in and to any and all Equivalents granted pursuant to this Award
Agreement, and to any shares of Common Stock into which they would convert,
which have not vested as described in paragraph 3 of this Award Agreement shall
be forfeited upon the Recipient's termination of service on the Board of
Directors of the Company. In addition, any Equivalents granted pursuant to this
Award Agreement which have not vested shall be forfeited if the shares of
Matched Common Stock to which they relate are sold or transferred by the
Recipient prior to three (3) years from the date of crediting of such
Equivalents.
7. Shareholder Rights; Adjustment of Equivalents
-------------------------------------------------
Recipient shall not be entitled, prior to the conversion of Equivalents into
shares of Common Stock, to any rights as a shareholder with respect to such
shares of Common Stock, including the right to vote, sell, pledge, transfer or
otherwise dispose of the shares. Recipient shall, however, have the right to
designate a beneficiary to receive such shares of Common Stock under this Award
Agreement, subject to the provisions of Section V of the Plan. The number of
Equivalents credited to Recipient may be adjusted, in the sole discretion of the
Nominating and Executive Compensation Committee of the Company's Board of
Directors, in accordance with the provisions of Section VI(F) of the Plan.
<PAGE>
8. Other
-----
The Company reserves the right, as determined by the Board of Directors of the
Company, to convert this Award Agreement to a substantially equivalent award and
to make any other modification it may consider necessary or advisable to comply
with any applicable law or governmental regulation, or to preserve the tax
deductibility of any payments hereunder.
9. Effective Date
---------------
This Award Agreement shall be deemed to be effective as of the 18th day of
September, 2000.
ACKNOWLEDGED AND ACCEPTED: ENERGIZER HOLDINGS, INC.
________________________________By:_______________________________
Recipient J. Patrick Mulcahy
<PAGE>
List of Recipients
Pamela M. Nicholson, Director
W. Patrick McGinnis, Director
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>doc5.txt
<TEXT>
INDEMNIFICATION AGREEMENT
-------------------------
INDEMNIFICATION AGREEMENT (the "Agreement") made this 15th day of October,
2002, between ENERGIZER HOLDINGS, INC., a Missouri corporation (the "Company")
and ____________________ ("Director").
WHEREAS, Director is a member of the Board of Directors of the Company, and
in such capacity is performing a valuable service for Company; and
WHEREAS, the Company's Articles of Incorporation (the "Articles") permit
the indemnification of directors, officers, employees and certain agents of the
Company, and indemnification is also authorized by Section 351.355 of the
Missouri Revised Statutes 1978, as amended to date (the "Indemnification
Statute"); and
WHEREAS, the Articles and the Indemnification Statute permit full
indemnification of officers absent knowingly fraudulent, deliberately dishonest
or willful misconduct; and
WHEREAS, in order to induce Director to continue to serve as a member of
the Board of Directors of the Company, Company has determined and agreed to
enter into this contract with Director;
NOW THEREFORE, in consideration of Director's continued service as a member
of the Board of Directors after the date hereof, the Company and Director agree
as follows:
1. Indemnity of Director. Company hereby agrees to hold harmless and
-----------------------
indemnify Director to the full extent authorized or permitted by the provisions
of the Indemnification Statute, or by any amendment thereof, or by any other
statutory provision authorizing or permitting such indemnification which is
adopted after the date hereof.
2. Additional Indemnity. Subject to the exclusions set forth in Section
--------------------
3 hereof, Company further agrees to hold harmless and indemnify Director against
any and all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement, actually and reasonably incurred by Director in connection
with any threatened, pending or completed action, claim, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of the Company) to which Director is, was or at any time becomes
a party, or is threatened to be made a party, by reason of the fact that
Director is, was or at any time (whether before or after the date of this
Agreement) becomes a director, officer, employee or agent of the Company, or is
or was serving or at any time serves at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
3. Limitations on Additional Indemnity. No indemnity pursuant to
--------------------------------------
Section 2 hereof shall be paid by Company:
(a) Except to the extent the aggregate of losses to be indemnified
thereunder exceeds the amount of such losses for which the Director is
indemnified pursuant to Section 1 hereof or pursuant to any insurance policies
or other comparable policies purchased and maintained by the Company;
(b) In respect to remuneration paid to Director if it shall be finally
judicially adjudged that such remuneration was in violation of law;
(c) On account of any suit in which a judgment is rendered against
Officer for an accounting of profits made from the purchase or sale by Director
of securities of the Company pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended or similar provisions of any state
or local statutory law;
(d) On account of Director's conduct which is finally judicially
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct;
(e) If it shall be finally judicially adjudged that such
indemnification is not lawful.
Reference in this Agreement to a matter being "finally judicially adjudged"
shall mean that there shall have been a final decision by a court having
jurisdiction in the matter, all appeals having been denied or not have been
taken and the time therefore to have expired.
4. Continuation of Indemnity. All agreements and obligations of
---------------------------
Company contained herein shall continue during the period Director is a member
of the Board of Directors of Company and shall continue thereafter so long as
Director shall be subject to any possible or threatened, pending or completed
action or claim, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that Director was a member of the Board of
Directors of the Company or was serving in any other capacity referred to
herein.
5. Notification and Defense of Claim. Promptly after receipt by
-------------------------------------
Director of notice of the commencement of any action, claim, suit or proceeding
against him by reason of his status as a Director of the Company or any other
capacity referenced herein, Director will notify Company of the commencement
thereof; provided, however, that the omission to so notify Company will not
relieve Company from any liability which it may have to Director under this
Agreement unless and only to the extent that Company's rights are actually
prejudiced by such failure. With respect to any such action, claim, suit or
proceeding as to which Director notifies Company of the commencement thereof:
(a) Company will be entitled to participate therein at its own expense;
and,
(b) Except as otherwise provided below, to the extent that it may wish,
Company jointly with any other party will be entitled to assume the defense
thereof, with counsel satisfactory to Director. After notice from Company to
Director of its election to so assume the defense thereof, Company will not be
liable to Director under this Agreement for any legal or other expenses
subsequently incurred by Director in connection with the defense thereof unless
Director shall have reasonably concluded that there may be a conflict of
interest between Company and Director in the conduct of the defense of such
action, in which case, Company shall not be entitled to assume the defense of
any action, claim, suit or proceeding brought by or on behalf of Company;
(c) Company shall not be liable to indemnify Director under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. Company shall not settle any action or claim in any
manner which would impose any penalty or limitation on Director without
Director's written consent. Neither Company nor Director will unreasonably
withhold their consent to any proposed settlement.
6. Advancement and Repayment of Expenses.
-----------------------------------------
(a) To the extent that the Company assumes the defense of any action,
claim, suit or proceeding against Director, Director agrees that he will
reimburse Company for all reasonable expenses paid by Company in defending any
such action, claim, suit or proceeding against Director in the event and only to
the extent that it shall be finally judicially adjudged that Director is not
entitled to be indemnified by Company for such expenses under the provisions of
the Indemnification Statute, the Articles, this Agreement or otherwise.
(b) To the extent that the Company does not assume the defense of any
action, claim, suit or proceeding against Director, Company shall advance to
Director all reasonable expenses, including all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with defending, preparing to defend or
investigating any civil or criminal action, suit or proceeding, within twenty
days after the receipt by Company of a statement or statements from Director
requesting such advance or advances, whether prior to or after final disposition
of such action, suit or proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by Director and shall include or be
preceded or accompanied by an undertaking by or on behalf of Director to repay
all of such expenses advanced if it shall be finally judicially adjudged that
Director is not entitled to be indemnified against such expenses. Any advances
and undertakings to repay pursuant to this paragraph shall be unsecured and
interest free.
7. Enforcement.
-----------
(a) Company expressly confirms and agrees that it has entered into this
Agreement and assumed the obligations imposed on Company hereby in order to
induce Director to continue to serve as a member of the Board of Directors of
Company, and acknowledges that Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event Director is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Company shall reimburse Director for all of Director's reasonable fees
and expenses in bringing and pursuing such action.
8. Separability. Each of the provisions of this Agreement is a
------------
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
9. Governing Law; Binding Effect; Amendment and Termination.
--------------------------------------------------------------
(a) This Agreement shall be interpreted and enforced in accordance with
the laws of the State of Missouri.
(b) This Agreement shall be binding upon Director and upon Company, its
successors and assigns, and shall inure to the benefit of Director, his heirs,
personal representatives and assigns, and to the benefit of Company, its
successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless signed in writing by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
ENERGIZER HOLDINGS, INC.
By:_____________________________
J. Patrick Mulcahy
DIRECTOR
By:_____________________________
List of Recipients
W. Patrick McGinnis
Pamela M. Nicholson
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>7
<FILENAME>doc6.txt
<TEXT>
ENERGIZER HOLDINGS, INC.
Deferred Compensation Plan
2002 Election Form
- --------------------
- --------------------------------------------- ----------------------------
Participant Name (Last, First, Middle Initial) Social Security Number
I have been offered an opportunity to participate in the Energizer Holdings,
Inc., Deferred Compensation Plan (the "Plan"). I hereby elect to participate in
the Plan and irrevocably authorize the Company to deduct from my compensation
the amounts specified below:
================================================================================
DEFERRAL ELECTION PLEASE COMPLETE THE DEFERRAL ELECTION BELOW. YOU MUST
DEFER A TOTAL OF AT LEAST $1,000 TO PARTICIPATE IN THE
PLAN.
================================================================================
BASE SALARY I elect to defer _______% of my calendar 2001 Base
Salary (maximum deferral is 75%).
================================================================================
INCENTIVE PLAN BONUS I elect to defer _______%, OR all up to $_______, OR
defer all in excess of $_______ of my Year 2002
Incentive Plan Bonus.
================================================================================
NON-PARTICIPATION I elect not to defer calendar 2002 Base Salary or
Fiscal Year Incentive Plan Bonus.
================================================================================
================================================================================
CALENDAR 2002 BASE SALARY INVESTMENT ELECTION (PLEASE SELECT IN WHOLE
PERCENTAGE INCREMENTS; TOTAL MUST EQUAL 100%)
================================================================================
I elect to invest my calendar 2002 Base Salary deferrals in the following
Measurement Funds:
================================================================================
<TABLE>
<CAPTION>
I elect to invest my calendar 2002 Base Salary deferrals in the following Measurement Funds:
<S> <C> <C> <C>
Energizer Holdings, Inc. Common Stock ____% Vanguard International Growth Fund ____%
Prime Rate Fund ____% Vanguard Life Strategy Income Fund ____%
Vanguard Wellington Fund ____% Vanguard Life Strategy Conservative
Vanguard 500 Index ____% Growth Fund ____%
Vanguard Windsor II Fund ____% Vanguard Life Strategy Moderate Growth ____%
Vanguard Small-Cap Index ____% Vanguard Life Strategy Growth Fund ____%
Vanguard PRIMECAP Fund ____% Vanguard Explorer Fund ____%
Vanguard Bond Index Fund ____%
</TABLE>
================================================================================
FISCAL YEAR 2002 INCENTIVE PLAN BONUS INVESTMENT ELECTION (PLEASE SELECT IN
WHOLE PERCENTAGE INCREMENTS; TOTAL MUST EQUAL 100%)
================================================================================
<TABLE>
<CAPTION>
I elect to invest my Fiscal Year 2002 Incentive Plan Bonus deferrals in the following
Measurement Funds:
<S> <C> <C> <C>
Energizer Holdings, Inc. Common Stock ____% Vanguard International Growth Fund ____%
Prime Rate Fund ____% Vanguard Life Strategy Income Fund ____%
Vanguard Wellington Fund ____% Vanguard Life Strategy Conservative
Vanguard 500 Index ____% Growth Fund ____%
Vanguard Windsor II Fund ____% Vanguard Life Strategy Moderate Growth ____%
Vanguard Small-Cap Index ____% Vanguard Life Strategy Growth Fund ____%
Vanguard PRIMECAP Fund ____% Vanguard Explorer Fund ____%
Vanguard Bond Index Fund ____%
</TABLE>
(OVER)
ELECTION OF DATE AND FORM OF PAYMENT FOR 2002 DEFERRALS (PLEASE SELECT A DATE
AND FORM OF PAYMENT)
================================================================================
I elect to receive _______% of my calendar 2002 Base Salary Deferrals and/or
my Fiscal Year 2002 Incentive Plan Bonus Deferrals and the associated
earnings, on ___________________(cannot be sooner than January 1, 2006).
I understand that if my employment terminates for any reason prior to the
date I elected above, my benefit will be paid to me upon my termination
of employment.
I elect to receive my calendar 2002 Base Salary Deferrals and/or my Fiscal
Year 2002 Incentive Plan Bonus Deferrals upon the termination of my
employment for any reason.
================================================================================
Upon termination of my employment for any reason, I elect to receive payment of
my entire Account Balance in the following form (check one below):
________ Lump Sum ________ 5 Annual Payments ________ 10 Annual Payments
I understand that if my vested account balance is less than $50,000 my account
will be paid to me in a lump sum.
================================================================================
ACCEPTED AND ACKNOWLEDGED:
- ----------------------------- -------------------------------------------------
SIGNATURE OF PARTICIPANT DATE FOR ENERGIZER PLANS ADMINISTRATIVE COMMITTEE DATE
MAIL OR FAX TO:
CLARK/BARDES CONSULTING - COMPENSATION RESOURCE GROUP
ATTN: ROGER PENA
633 WEST FIFTH STREET, 52ND FLOOR
LOS ANGELES, CA 90071
FAX (213) 438-6600
<PAGE>
ENERGIZER HOLDINGS, INC.
Deferred Compensation Plan
2002 Election Form for Directors
- ------------------------------------
- ------------------------------------------------ ---------------------------
Participant's Name (Last, First, Middle Initial) Social Security Number
I have been offered an opportunity to participate in the Energizer Holdings,
Inc., Deferred Compensation Plan (the "Plan"). I hereby elect to participate in
the Plan and irrevocably authorize the Company to deduct from my calendar 2002
Director's Fees the amount specified below:
================================================================================
DIRECTOR'S FEE DEFERRAL ELECTION PLEASE COMPLETE THE DEFERRAL ELECTION
BELOW. YOU MUST DEFER A TOTAL OF AT LEAST $ 1,000 TO PARTICIPATE IN THE PLAN.
================================================================================
FEES I elect to defer _______%, or all up to $____________,
or all in excess of $____________, or _____% in excess
of $____________ of my remaining calendar 2002
Director's Fees
================================================================================
NON-PARTICIPATION I elect not to defer my remaining calendar 2002
Director's Fees
================================================================================
DIRECTOR'S FEE INVESTMENT ELECTION (PLEASE SELECT IN WHOLE PERCENTAGE
INCREMENTS; TOTAL MUST EQUAL 100%)
================================================================================
<TABLE>
<CAPTION>
I elect to invest my calendar 2002 Director's Fee Deferrals in the following
Measurement Funds:
<S> <C> <C> <C>
Energizer Holdings, Inc. Common Stock ____% Vanguard International Growth Fund ____%
Prime Rate Fund ____% Vanguard LifeStrategy Income Fund ____%
Vanguard Wellington Fund ____% Vanguard LifeStrategy Conservative
Vanguard 500 Index ____% Growth Fund ____%
Vanguard Windsor II Fund ____% Vanguard LifeStrategy Moderate Growth ____%
Vanguard Small-Cap Index ____% Vanguard LifeStrategy Growth Fund ____%
Vanguard PRIMECAP Fund ____% Vanguard Explorer Fund ____%
Vanguard Bond Index Fund ____%
</TABLE>
ACCEPTED AND ACKNOWLEDGED:
- ------------------------------ --------------------------------------------
Signature of Participant Date for the Nominating and Executive Date
Compensation Committee
PLEASE COMPLETE AND RETURN FORMS TO:
CLARK/BARDES CONSULTING - COMPENSATION RESOURCE GROUP
ATTN: ROGER PENA
633 WEST FIFTH STREET, 52ND FLOOR
LOS ANGELES, CA 90071-2086
FAX: (213) 438-6600
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>8
<FILENAME>doc7.txt
<TEXT>
ACKNOWLEDGMENT FOR DEFERRAL
OF
FISCAL YEAR 2002 INCENTIVE PLAN BONUS
Energizer Holdings, Inc. and acknowledge that, of the
------------ -------
FY2002 Bonus awarded to Participant under the Fiscal Year 2002 Incentive Bonus
Program, shall be deferred, effective November 15, 2002, as previously requested
by Participant, into the Measurement Fund(s) available under the Energizer
Holdings, Inc. Deferred Compenstaion Plan (the "Plan").
Pursuant to Participant's request, the following amounts have been deferred
for Participant in the manner set forth below:
(1) ENERGIZER HOLDINGS, INC. COMMON STOCK MEASUREMENT FUND -
(a) in Energizer common stock equivalents and
------------
(b) in Energizer common stock equivalents,
------------
representing the Company Matching Contribution (25% of amount listed
in 1(a) above).
(2) OTHER MEASUREMENT FUNDS - $ in other Measurement Funds as
---------
previously selected by Participant.
Participant's deferral as described hereunder is pursuant to the Plan and
is Subject in all respects to the terms and conditions of the Plan. THIS
AGREEMENT SUPERCEDES ANY PREVIOUS AGREEMENT FOR DEFERRAL OF 2002 ANNUAL CASH
BONUS.
ACKNOWLEDGED: ENERGIZER HOLDINGS, INC.
By:
- ---------------------------- --------------------
Peter Conrad
Vice President
Human Resources
- ----------------------------
Date
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>9
<FILENAME>doc8.txt
<TEXT>
FINANCIAL REVIEW 2002
CONTENTS
10
Management's Discussion
and Analysis of Results of
Operations and Financial
Condition
19
Summary Selected
Historical Financial
Information
20
Responsibility for Financial
Statements
20
Report of Independent
Accountants
21
Consolidated Financial
Statements
25
Notes to Consolidated
Financial Statements
PAGE 9 ENR 2002 Annual Report
Energizer Holdings, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
(Dollars in millions except per share and percentage data)
The following discussion is a summary of the key factors management considers
necessary in reviewing Energizer Holdings, Inc.'s (Energizer) historical basis
results of operations, operating segment results, liquidity and capital
resources. This discussion should be read in conjunction with the Consolidated
Financial Statements and related notes.
Basis of Presentation
Prior to April 1, 2000, Energizer was a wholly owned subsidiary of Ralston
Purina Company (Ralston). On that date, Ralston distributed the common stock of
Energizer to its shareholders in a tax-free spin-off.
Financial statements as of and for periods after the spin-off are presented on a
consolidated basis. The Statement of Earnings and Statement of Cash Flows for
the year ended September 30, 2000 include the combined results of operations of
the Energizer businesses under Ralston for the six months prior to the spin-off
and the consolidated results of operations of Energizer on a stand-alone basis
for the six months ended September 30, 2000.
Business Overview
Energizer is one of the world's largest manufacturers of primary batteries and
flashlights and a global leader in the dynamic business of providing portable
power. Energizer manufactures and/or markets a complete line of primary alkaline
and carbon zinc, miniature and rechargeable batteries primarily under the brands
Energizer e2, Energizer and Eveready, as well as specialty photo lithium
batteries, flashlights and other lighting products.
There has been a continuing shift in consumer preference from carbon zinc
batteries to higher powered, higher priced alkaline batteries. Alkaline
batteries are now the predominant primary battery in most parts of the world
except Asia and Africa. However, carbon zinc batteries continue to play a major
role in less developed countries throughout the world and offer Energizer market
position in those countries. Energizer uses its full portfolio of products to
better meet consumer needs.
Energizer and its subsidiaries operate 21 manufacturing and packaging facilities
in 14 countries on four continents. Its products are marketed and sold in more
than 150 countries primarily through a direct sales force, and also through
distributors, to mass merchandisers, wholesalers and other customers.
Energizer's operations are managed via four major geographic areas - North
America (the United States, Canada and Caribbean), Asia Pacific, Europe, and
South and Central America (including Mexico). Segment profit and sales are
concentrated in the North America and Asia Pacific areas which together account
for 92% and 78%, respectively, of 2002 segment profit and sales.
The battery category continues to be highly competitive as manufacturers compete
for consumer acceptance and retail shelf space. Economic weakness and inventory
reductions by retailers have further pressured the battery category globally.
In the United States, retail alkaline battery category sales grew an estimated
7% to 10% annually through fiscal 1999, and spiked to unprecedented levels in
late calendar 1999 due to concerns about the year 2000 date change. Following
the millennium change, consumers and retailers reduced their battery supplies,
dampening category sales in the latter part of fiscal 2000 and in 2001. During
2002, retail alkaline units grew an estimated 6% compared to 2001, but have not
returned to historical growth rates. Over the last three years, category dollar
sales have lagged unit sales as consumer purchases have shifted to larger pack
sizes, and promotional discounting has deepened as competitors attempt to gain
or protect share. Energizer estimates its share of the total U.S. retail
alkaline market was approximately 32% in 2002 and 2001 and 33% in 2000.
Retail outlets experiencing the strongest battery category growth in the United
States include mass merchandisers' super center format, home centers and dollar
stores, while traditional outlets such as food, drug and hardware declined.
Wal-Mart Stores, Inc. and its subsidiaries is Energizer's largest customer.
Energizer is well positioned to meet the needs of customer and consumer demands
in these formats, leveraging category expertise, retail understanding and its
portfolio of products to give Energizer a strong presence in each of the retail
channels.
Internationally, economic conditions and currency devaluation, relative to the
U.S. dollar, have been unfavorable to Energizer during 2000 through 2002. In
2002, the Argentine peso value declined in excess of 70%. In 2001, Australia,
New Zealand, the Philippines and other countries in the Asia Pacific region
experienced devaluation. The Euro and certain other European currencies
rebounded in 2002 and late 2001 after devaluation in 2000 and most of 2001. A
significant portion of Energizer's product cost is more closely tied to the U.S.
dollar than to the local currencies in which the product is sold. As such,
currency devaluation relative to the U.S. dollar reduces margins to the extent
increased costs in local currency terms are not offset by local currency price
increases. Conversely, strengthening currencies relative to the U.S. dollar are
generally favorable to Energizer's profit margins. Changes in the value of local
currencies may continue to impact segment profitability in the future.
Reporting Period Synchronization
Energizer historically reported results of international operations on a
one-month lag. As a result, years prior to 2001 represent results of
international operations for September through August combined with the U.S.
results for October through September. Beginning in fiscal 2001, Energizer
synchronized international operations' reporting to be consistent with U.S.
reporting.
ENR 2002 Annual Report PAGE 10
The impact of the synchronization on fiscal 2000 results was to decrease sales
by $28.4 to $1,899.3 and net earnings by $9.0 to $171.2. The impact of the
synchronization on fiscal 2000 reported earnings per share was a decrease of
$.09 per share.
Highlights
Net earnings for the year ended September 30, 2002 were $186.4 compared to a
loss of $39.0 in 2001 and net earnings of $181.4 in 2000. Basic and diluted
earnings per share in 2002 were $2.05 and $2.01, respectively, compared to a
loss of $.42 per share in 2001 and basic and diluted earnings per share of $1.89
and $1.88 in 2000, respectively.
Current year net earnings include the following items, stated on an after-tax
basis: accounts receivable write-off associated with the bankruptcy of Kmart of
$9.3, provisions for restructuring and related costs of $7.8, tax benefits
related to prior years' losses of $6.7 and a gain on the sale of property of
$5.0. Fiscal 2001 results included the following after-tax items: a provision
for goodwill impairment of $119.0, restructuring of $19.4 and amortization of
goodwill and other intangible assets of $15.1, which is no longer required under
accounting rules adopted in fiscal 2002, as well as intellectual property rights
income of $12.3. Fiscal 2000 results include after-tax charges of $3.3 related
to the spin-off, $15.7 loss on the disposition of Energizer's Spanish affiliate
and amortization of goodwill and other intangible assets of $16.6, which is no
longer required under accounting rules adopted in fiscal 2002, as well as
capital loss tax benefits of $24.4.
Fiscal 2000 results include a net gain on disposition of discontinued operations
of $1.2, or $.01 per share, related to the final settlement of the sale of
discontinued operations.
All statement of earnings-related discussions comparing fiscal 2001 to fiscal
2000 below refer to comparisons using synchronized fiscal 2000 results.
Operating Results
NET SALES
Net sales increased $45.5, or 3%, in 2002 compared to 2001 on higher volume.
Favorable pricing and product mix was substantially offset by currency
devaluation. Net sales decreased $205.1, or 11%, in 2001 compared to 2000 with
unfavorable pricing and product mix, lower volumes and currency devaluation each
accounting for about one-third of the decline. See comments on sales changes by
region in the Segment Results section below.
GROSS MARGIN
Gross margin dollars increased $80.8, or 12%, in 2002 on lower product costs and
higher sales. Gross margin percentage improved 3.6 percentage points in 2002 to
44.6% of sales. Gross margin percentage increased in all segments due to lower
product cost. Gross margin dollars decreased $172.0, or 20%, in 2001 primarily
on lower sales in North America and Asia Pacific. Gross margin percentage
declined 4.7 percentage points in 2001 to 41.0% on lower sales.
All geographic segments benefited in 2002 from lower material and variable
costs, the impact of restructuring activities undertaken in 2001 and improved
plant operating levels. In 2001, product costs were unfavorable compared to
2000, primarily due to lower plant operating levels.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expense decreased $13.3, or 4%, in 2002 on
lower overhead costs in North America, Asia Pacific, and South and Central
America and the absence of goodwill and intangible amortization, which is no
longer amortized as of 2002 due to the adoption of new accounting rules,
partially offset by higher corporate expenses and a $15.0 write-off of Kmart
pre-bankruptcy accounts receivable. Selling, general and administrative expense
decreased $24.5, or 7%, in 2001 compared to 2000 on lower corporate, Asia
Pacific and Europe expenses. Selling, general and administrative expenses were
17.6%, 18.9% and 18.2% of sales in 2002, 2001 and 2000, respectively.
ADVERTISING AND PROMOTION
Advertising and promotion expense decreased $9.1 in 2002 and $31.1 in 2001 on
lower spending in all regions. Advertising and promotion as a percent of sales
was 7.2%, 7.9% and 8.7% in 2002, 2001 and 2000, respectively.
SEGMENT RESULTS
Energizer's operations are managed via four major geographic areas - North
America (the United States, Canada and Caribbean), Asia Pacific, Europe, and
South and Central America (including Mexico). Prior to fiscal 2002, each segment
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
Energizer's current management objectives and structure, Energizer believes the
exclusion of intersegment profit in segment results is a more appropriate view
of its operating segments.
Beginning in fiscal 2002, Energizer reported 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 will no longer be
reported in the selling region. As a result, segments with manufacturing
capacity that are net exporters to other segments will show lower segment profit
than in the past. Segments that are net importers of Energizer-manufactured
product will show higher segment profit than in the past.
ENR 2002 Annual Report PAGE 11
Energizer Holdings, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION Continued
(Dollars in millions except per share and percentage data)
This structure is the basis for Energizer's reportable operating segment
information presented in Note 22 to the Consolidated Financial Statements. Prior
periods have been restated for comparability. Energizer evaluates segment
profitability based on operating profit before general corporate expenses,
research and development expenses, amortization of goodwill and intangibles, and
unusual items.
NORTH AMERICA Net sales increased $64.7, or 7%, in 2002 on higher volume.
Alkaline and photo lithium battery unit sales increased 7% and 22%,
respectively. Pricing and product mix was slightly unfavorable for the year.
Gross margin increased $75.4 in 2002 on lower product cost and higher sales.
Segment profit increased $83.8, or 41%, reflecting higher margins and lower
overhead and advertising expenses, partially offset by the $15.0 write-off of
Kmart pre-bankruptcy accounts receivable.
Net sales decreased $152.3, or 14%, in 2001 with lower volume accounting for
slightly more than half of the decline. Alkaline, carbon zinc and lighting
products unit volume decreased 5%, 4% and 13%, respectively, from 2000, compared
to heavy Y2K demand in 2000, and reflecting retail inventory reductions in 2001.
Unfavorable pricing and product mix accounted for the remainder of the sales
decline, reflecting increased promotional spending. Gross margin decreased
$118.9 in 2001 on unfavorable pricing and product mix, lower volume and higher
product cost rates associated with lower production levels. Segment profit
decreased $104.1, or 34%, as lower gross margin was partially offset by lower
advertising and promotion expense.
ASIA PACIFIC Net sales decreased $1.9, or 1%, in 2002 as unfavorable currency
translation of $5.1 and lower volume from non-alkaline product lines were nearly
offset by improved pricing and higher alkaline volume. Alkaline volume increased
25% in 2002 on significantly increased sales to equipment manufacturers and a 6%
increase in unit sales to retail channels, while carbon zinc and lighting
products unit volume declined 5% and 15%, respectively. In 2002, segment profit
increased $11.9, or 18%, primarily on lower product and overhead costs.
Net sales decreased $46.6, or 13%, in 2001. Excluding currency devaluation of
$30.3, net sales decreased $16.3, or 4%, on lower volume reflecting unfavorable
economic conditions in the region. Alkaline, carbon zinc and lighting products
unit volume decreased 5%, 8% and 2%, respectively, from 2000. Segment profit for
Asia Pacific decreased $20.8, or 24%, in 2001 with unfavorable currency effects
accounting for $19.0 of the decline. Absent currencies, segment profit decreased
$1.8, or 2%, on lower volume and higher product cost, partially offset by lower
advertising and promotion and overhead expenses.
EUROPE In 2002, net sales increased $16.0, or 6%, on improved pricing and
product mix and favorable currency translation of $9.9, partially offset by
lower carbon zinc volume. Favorable pricing and product mix reflects the launch
of higher priced, higher performing Energizer Ultra+ in late 2001. In 2002,
alkaline unit volume increased 2%, while carbon zinc continued to decline with a
16% decrease. Segment profit increased in 2002 by $14.7, including favorable
currency of $1.8, due to higher sales and lower product costs.
Net sales for Europe decreased $13.1, or 5%, in 2001, which included currency
devaluation of $24.2. Absent currency effect, sales increased $11.1, or 4%, on
higher volume, partially offset by unfavorable pricing and product mix in the
first three quarters of the year. Alkaline unit volume increased 19% during 2001
while carbon zinc volume declined 12%. Much of the volume increase and
unfavorable pricing was due to heavy promotional activity early in the year.
Segment results for Europe improved $.5 in 2001, which included unfavorable
currency effects of $13.4. Absent currencies, segment profit increased $13.9,
with higher sales, lower advertising and promotion expense, and lower product
cost accounting for the majority of the increase. In addition, prior year
results included an unfavorable adjustment related to estimates for promotional
and rebate programs, as well as costs related to reorganization activities.
SOUTH AND CENTRAL AMERICA Net sales for 2002 decreased $33.3, or 25%, due to
currency devaluation of $23.7 and significantly lower volumes, partially offset
by higher prices. Argentina accounted for $26.0 of the total net sales decline.
Alkaline and carbon zinc volume declined 15% and 2%, respectively, in 2002. In
the first quarter of fiscal 2002, Energizer took deliberate actions to reduce
sales and accounts receivable in Argentina in anticipation of currency
devaluation. Following devaluation, demand has declined sharply, however
Energizer has maintained its market share in Argentina. Segment profit fell
$3.6, or 27%, in 2002 as unfavorable currency impacts of $12.4 and lower volumes
were partially offset by higher pricing and lower product and overhead costs.
Net sales increased $6.9, or 5%, in 2001 primarily on higher volume, partially
offset by currency devaluation. Alkaline volume increased 5% in 2001 while
carbon zinc volume declined 2%. Segment profit decreased $3.1, or 19%, virtually
all on currency impacts. Higher sales volumes were offset by higher product
costs.
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 16% of South and Central America's net sales for the
fiscal year ended September 30, 2002 compared to approximately 30% 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.
ENR 2002 Annual Report PAGE 12
GENERAL CORPORATE AND OTHER EXPENSES
General corporate and other expenses increased $28.5 in 2002 compared to 2001
primarily due to higher compensation costs related to company earnings and stock
price. Energizer recorded expense of $8.7 in 2002 to increase compensation
liabilities tied to Energizer stock price as the stock price increased, compared
to recorded income of $3.0 on such liabilities in 2001 as the stock price
declined. In May 2002, Energizer entered into an option arrangement with a
financial institution to substantially mitigate additional charges or income
associated with such liabilities going forward. See further discussion in Note
18 to the Consolidated Financial Statements.
General corporate and other expenses decreased $8.4 in 2001 compared to 2000 due
to lower incentive and stock compensation costs and higher pension income,
partially offset by higher management costs, including the incremental costs of
operating as a stand-alone company for a full year, compared to six months in
fiscal 2000.
As a percent of sales, general corporate and other expenses were 3.2% in 2002,
1.6% in 2001 and 1.8% in 2000.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was $37.1 in 2002, $46.4 in 2001 and $49.9 in
2000. In 2002, Energizer focused its research on new and improved products for
retail applications and reduced spending on products designed for industrial
applications. As a percent of sales, research and development expense was 2.1%
in 2002, 2.7% in 2001 and 2.6% in 2000.
RESTRUCTURING CHARGES
In March 2002, Energizer adopted a restructuring plan to reorganize certain
European selling, management, administrative and packaging activities. The total
cost of this plan was $6.7 before taxes, of which $4.5, or $2.9 after-tax, was
recorded in the second quarter of fiscal 2002 and $2.2, before and after-tax,
was recorded during the fourth quarter of fiscal 2002. These restructuring
charges consist of $5.2 for cash severance payments, $1.0 of other cash charges
and $.5 in enhanced pension benefits. As of September 30, 2002, 10 of a total of
64 employees have been terminated in connection with the 2002 plans. The plan is
expected to be complete by the end of fiscal 2003. When the program is fully
implemented, the annual pre-tax savings is estimated to be $4.5 of which $2.8
should be realized in fiscal 2003.
Because of a continued migration of consumer demand from carbon zinc to alkaline
batteries, Energizer performed a comprehensive study of its carbon zinc
manufacturing plant locations and capacities in fiscal 2001. Energizer also
reviewed its worldwide operations in light of competitive market conditions and
available technologies and techniques. During 2001, Energizer adopted
restructuring plans to eliminate carbon zinc capacity, and to reduce and realign
certain selling, production, research and administrative functions. The total
cost associated with this plan was $33.4 before taxes, of which $29.8, or $19.4
after-tax, was recorded in the fourth quarter of fiscal 2001. In the first
quarter of fiscal 2002, Energizer ceased production and terminated substantially
all of its employees at its Mexican carbon zinc production facility. Energizer
also continued execution of other previously announced restructuring actions.
Energizer recorded provisions for restructuring of $1.4, or $.9 after-tax, as
well as related costs for accelerated depreciation and inventory obsolescence of
$2.6, or $2.0 after-tax, which was recorded in cost of products sold in the
first quarter of fiscal 2002. In addition, Energizer recorded net reversals of
previously recorded excess restructuring charges of $.4, or $.2 after-tax,
during the fourth quarter of 2002.
The 2001 restructuring plans improved Energizer's operating efficiency,
downsized and centralized corporate functions, and decreased costs. One carbon
zinc production facility in Mexico was closed. A total of 539 employees were
terminated, consisting of 340 production and 199 sales, research and
administrative employees, primarily in the United States and South and Central
America.
The restructuring charges for the 2001 plan consist of non-cash fixed asset
impairment charges of $10.6 for the closed carbon zinc plant and production
equipment, enhanced pension benefits for certain terminated U.S. employees of
$8.3, cash severance payments of $7.6, other cash charges of $4.2, and $2.6 of
other related costs for accelerated depreciation and inventory obsolescence
recorded in cost of products sold.
Prior to fiscal 2000, Energizer adopted restructuring plans. All activities
associated with such plans, except disposition of certain assets held for
disposal had been completed as of September 30, 2000.
The carrying value of assets held for disposal under restructuring plans was
$1.3 at September 30, 2002.
Energizer expects to fund the remaining costs of these restructuring actions
with funds generated from operations.
Energizer will continue to review its battery production capacity and its
business structure in light of pervasive global trends, including the evolution
of technology. Future restructuring activities and charges may be necessary to
optimize its production capacity.
See Note 5 to the Consolidated Financial Statements for a table that presents,
by major cost component and by year of provision, activity related to the
restructuring charges discussed above during fiscal years 2002, 2001 and 2000
including any adjustments to the original charges.
ENR 2002 Annual Report PAGE 13
Energizer Holdings, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION Continued
(Dollars in millions except per share and percentage data)
GOODWILL AND INTANGIBLES
As part of its annual business planning cycle, Energizer performed an evaluation
of its European business in the fourth quarter of fiscal 2001, which resulted in
an impairment charge for $119.0 of related goodwill. At September 30, 2001, the
carrying amount of goodwill related to Energizer's European business was $8.5.
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. As part of its business planning
cycle in the fourth quarter of fiscal 2002, Energizer completed its impairment
test of goodwill and intangibles, which resulted in no impairment. See Note 8 to
the Consolidated Financial Statements for further discussion.
INTELLECTUAL PROPERTY RIGHTS INCOME
In fiscal 2001, Energizer recorded income of $20.0 pre-tax, or $12.3 after-tax,
related to the licensing of intellectual property rights.
LOSS ON DISPOSITION OF SPANISH AFFILIATE
In fiscal 2000, Energizer recorded a $15.7 pre-tax loss on the sale of its
Spanish affiliate prior to the spin-off. The loss was a non-cash write-off of
goodwill and cumulative translation accounts of the Spanish affiliate. Ralston
recognized capital loss tax benefits related to the Spanish sale of $24.4, which
are reflected in Energizer's historical financial statements and resulted in a
net after-tax gain of $8.7 on the Spanish transaction. Energizer would not have
realized such capital loss benefits on a stand-alone basis.
INTEREST AND OTHER FINANCIAL ITEMS
Interest expense decreased $12.1 in 2002, on lower average borrowings, as well
as lower interest rates on variable rate debt. Interest expense increased $5.9
in 2001 from 2000 as the cost of incremental debt assumed by Energizer
immediately prior to the spin-off was partially offset by lower average
borrowings and lower interest rates in the second half of 2001, compared to the
same period in 2000.
Other financing-related costs declined $1.2 in 2002, on lower discounts on the
sale of accounts receivable under a financing arrangement, partially offset by
net exchange losses versus net exchange gains in 2001. Other financing-related
costs increased $5.9 in 2001, reflecting the discount on the sale of accounts
receivable under a financing arrangement and lower net exchange gains.
INCOME TAXES
Income taxes, which include federal, state and foreign taxes, were 33.1%, 223.8%
and 35.5% of earnings from continuing operations before income taxes in 2002,
2001 and 2000, respectively. Earnings before income taxes and income taxes
include certain unusual items in all years the most significant of which are
described as follows:
* In 2002, $6.7 of tax benefits related to prior years' losses was recorded.
* In 2001, the provision for goodwill impairment of $119.0 has no associated
tax benefit, as the charge is not deductible for tax purposes. The provisions
for restructuring of $29.8 have an associated tax rate of 34.9%.
* In 2001 and 2000, goodwill was amortized with no associated tax benefit.
* In 2000, the income tax percentage was favorably impacted by the recognition
of $24.4 U.S. capital loss tax benefits related to the disposition of
Energizer's Spanish affiliate.
Excluding the items discussed above, the income tax percentage was 35.5% in
2002, 42.3% in 2001 and 39.9% in 2000. In 2002, the rate improved due to reduced
foreign losses and lower taxes on repatriation of foreign earnings. The higher
effective tax rate in 2001 compared to 2000 reflects pre-tax losses in foreign
tax jurisdictions for which no tax benefits were realized. The year-over-year
increase was the result of the fixed dollar impact of these items being spread
over a smaller earnings base.
Energizer's effective tax rate is highly sensitive to country mix from which
earnings or losses are derived. To the extent future earnings levels and country
mix are similar to the 2002 level, future tax rates would likely be in the 36%
range. Shifts of earnings from lower to higher tax rate countries or higher
losses in countries where tax benefits cannot be recognized could increase
future tax rates. Conversely, favorable country earnings mix or reduced foreign
losses could reduce future tax rates.
Liquidity and Capital Resources
Cash flows from continuing operations totaled $206.1 in 2002, $318.1 in 2001 and
$289.6 in 2000. The decrease in cash flows from operations in 2002 was primarily
due to the absence of a significant inventory reduction, as was experienced in
2001 and lower proceeds from the sale of accounts receivable. Cash flows from
operations in 2001 increased modestly due to significant inventory reduction in
2001 compared to a significant inventory increase in 2000, and other working
capital improvements in 2001, partially offset by substantially lower cash
earnings in 2001 and lower proceeds from sale of accounts receivable.
Working capital was $353.3 and $288.1 at September 30, 2002 and 2001,
respectively. Capital expenditures totaled $40.7, $77.9 and $72.8 in 2002, 2001
and 2000, respectively. These expenditures were funded by cash flow from
operations. Capital expenditures decreased in 2002 as several major projects
were completed in late 2001 and early 2002. Capital
ENR 2002 Annual Report PAGE 14
expenditures of approximately $80.0 are anticipated in 2003 and are expected to
be financed with funds generated from operations.
Immediately prior to the spin-off, Ralston borrowed $478.0 through several
interim-funding facilities and assigned all repayment obligations of those
facilities to Energizer. In April and May of 2000, Energizer entered into
separate financing agreements and repaid the interim-funding facilities. Total
long-term debt outstanding, including current maturities was $175.0 at September
30, 2002. Energizer maintains total committed debt facilities of $625.0, of
which $450.0 remained available as of September 30, 2002.
Under the terms of the facilities, the ratio of Energizer's total indebtedness
to its EBITDA cannot be greater than 3-to-1 and the ratio of its EBIT to total
interest expense must exceed 3-to-1. Energizer's ratio of total indebtedness to
EBITDA was .8 to 1 and the ratio of EBIT to total interest expense was 13.6 to 1
as of September 30, 2002.
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, which was completed in May 2002. At that time, the Board approved a new
share repurchase plan authorizing the repurchase of up to an additional 5
million shares of common stock, of which no shares have been repurchased as of
the date of this report. In addition, in August 2002, pursuant to a modified
Dutch Auction tender offer, and under a separate Board authorization, Energizer
acquired approximately 2.6 million shares of its common stock at a cost of
$77.0.
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 the ordinary
course of business. Substantially all accounts receivable in the United States
are routinely sold to Energizer Receivables Funding Corporation (the SPE), which
is a wholly owned, bankruptcy remote special purpose entity subsidiary of
Energizer. The SPE's only business activities relate to acquiring and selling
interests in Energizer's receivables, and it is 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 our 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 has been 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 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 15 to the Consolidated Financial
Statements.
Inflation
Management recognizes that inflationary pressures may have an adverse effect on
Energizer, through higher asset replacement costs and related depreciation, and
higher material, labor and other costs. Energizer tries to minimize these
effects through cost reductions and productivity improvements as well as price
increases to maintain reasonable profit margins. It is management's view,
however, that inflation has not had a significant impact on operations in the
three years ended September 30, 2002.
Seasonal Factors
Energizer's results are significantly impacted in the first quarter of the
fiscal year by the additional sales volume associated with the December holiday
season, particularly in North America. First quarter sales accounted for 33%,
33% and 35% of total net sales in 2002, 2001 and 2000, respectively. The first
quarter percentage in 2000 was also higher due to Y2K-driven demand.
Environmental Matters
The operations of Energizer, like those of other companies engaged in the
battery business, are subject to various federal, state, foreign and local laws
and regulations intended to protect the public health and the environment. These
regulations primarily relate to worker safety, air and water quality,
underground fuel storage tanks and waste handling and disposal.
Energizer has received notices from the U.S. Environmental Protection Agency,
state agencies and/or private parties seeking contribution, that it has been
identified as a "potentially responsible party" (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act, and may be required to
share in the cost of cleanup with respect to eight federal "Superfund" sites. It
may also be required to share in the cost of cleanup with respect to a
state-designated site. Liability under the applicable federal and state statutes
which mandate cleanup is strict, meaning that liability may attach regardless of
lack of fault, and joint and
ENR 2002 Annual Report PAGE 15
Energizer Holdings, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION Continued
(Dollars in millions except per share and percentage data)
several, meaning that a liable party may be responsible for all of the costs
incurred in investigating and cleaning up contamination at a site. However,
liability in such matters is typically shared by all of the financially viable
responsible parties, through negotiated agreements. Negotiations with the U.S.
Environmental Protection Agency, the state agency that is involved on the
state-designated site, and other PRPs are at various stages with respect to the
sites. Negotiations involve determinations of the actual responsibility of
Energizer and the other PRPs at the site, appropriate investigatory and/or
remedial actions, and allocation of the costs of such activities among the PRPs
and other site users.
The amount of Energizer's ultimate liability in connection with those sites may
depend on many factors, including the volume and toxicity of material
contributed to the site, the number of other PRPs and their financial viability,
and the remediation methods and technology to be used.
In addition, Energizer undertook certain programs to reduce or eliminate the
environmental contamination at the rechargeable battery facility in Gainesville,
Florida, which was divested in November 1999. The buyer assumed responsibility
for those programs at the time of the divestiture. In 2001, the buyer, as well
as its operating subsidiary, which owns and operates the Gainesville facility,
filed petitions in bankruptcy. In the event that the buyer and its affiliates
become unable to continue the programs to reduce or eliminate contamination,
Energizer could be required to bear financial responsibility for such programs
as well as for other known and unknown environmental conditions at the site.
Under the terms of the Reorganization Agreement between Energizer and Ralston
Purina Company, however, which has been assumed by an affiliate of The Nestle
Corporation, Ralston's successor is obligated to indemnify Energizer for 50% of
any such liabilities in excess of $3.
Many European countries, as well as the European Union, have been very active in
adopting and enforcing environmental regulations. In many developing countries
in which Energizer operates, there has not been significant governmental
regulation relating to the environment, occupational safety, employment
practices or other business matters routinely regulated in the United States. As
such economies develop, it is possible that new regulations may increase the
risk and expense of doing business in such countries.
Accruals for environmental remediation are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based on current law and existing technologies. These accruals are
adjusted periodically as assessments take place and remediation efforts
progress, or as additional technical or legal information becomes available.
It is difficult to quantify with certainty the potential financial impact of
actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available,
Energizer believes that its ultimate liability arising from such environmental
matters, taking into account established accruals of $7.0 for estimated
liabilities at September 30, 2002, should not be material to its financial
position. Such liability could, however, be material to results of operations or
cash flows for a particular quarter or year.
Market Risk Sensitive Instruments and Positions
The market risk inherent in Energizer's financial instruments and positions
represents the potential loss arising from adverse changes in interest rates,
foreign currency exchange rates and stock price. The following risk management
discussion and the estimated amounts generated from the sensitivity analyses are
forward-looking statements of market risk assuming certain adverse market
conditions occur.
INTEREST RATES
At September 30, 2002 and 2001, the fair market value of Energizer's debt is
estimated at $200.0 and $242.2, respectively, using yields obtained from
independent pricing sources for similar types of borrowing arrangements. The
fair value of debt exceeded the carrying value of Energizer's debt at September
30, 2002 and 2001 by $25.0 and $17.2, respectively. A 10% adverse change in
interest rates would have increased the fair market value by $2.5 and $2.3 at
September 30, 2002 and 2001, respectively.
Energizer has interest rate risk with respect to interest expense on variable
rate debt. At September 30, 2002 and 2001, Energizer had $94.6 and $160.3
variable rate debt outstanding. A hypothetical 10% adverse change in all
interest rates would have had an annual unfavorable impact of $.4 and $.9 in
2002 and 2001, respectively, on Energizer's earnings and cash flows, based upon
these year-end debt levels. The primary interest rate exposures on variable rate
debt are with respect to short-term local currency rates in certain European and
Asian countries.
FOREIGN CURRENCY EXCHANGE RATES
Energizer employs a foreign currency hedging strategy which focuses on
mitigating potential losses in earnings or cash flows on foreign currency
transactions, which primarily consist of anticipated intercompany purchase
transactions and intercompany borrowings. External purchase transactions and
intercompany dividends and service fees with foreign currency risk are also
hedged from time to time. The primary currencies to which Energizer's foreign
affiliates are exposed include the U.S. dollar, the Euro and the British pound.
Energizer's hedging strategy involves the use of natural hedging techniques,
where possible, such as the offsetting or netting of like foreign currency cash
flows. Where natural hedging techniques are not possible,
ENR 2002 Annual Report PAGE 16
foreign currency derivatives with a duration of generally one year or less may
be used, including forward exchange contracts, purchased put and call options,
and zero-cost option collars. Energizer policy allows foreign currency
derivatives to be used only for identifiable foreign currency exposures and,
therefore, Energizer does not enter into foreign currency contracts for trading
purposes where the sole objective is to generate profits. Energizer has not
designated any financial instruments as hedges for accounting purposes in the
three years ended September 30, 2002.
Market risk of foreign currency derivatives is the potential loss in fair value
of net currency positions for outstanding foreign currency contracts at fiscal
year-end, resulting from a hypothetical 10% adverse change in all foreign
currency exchange rates. Market risk does not include foreign currency
derivatives that hedge existing balance sheet exposures, as any losses on these
contracts would be fully offset by exchange gains on the underlying exposures
for which the contracts are designated as hedges. Accordingly, the market risk
of Energizer's foreign currency derivatives at September 30, 2002 and 2001
amounts to $.9 and $1.9, respectively.
Energizer generally views as long-term its investments in foreign subsidiaries
with a functional currency other than the U.S. dollar. As a result, Energizer
does not generally hedge these net investments. Capital structuring techniques
are used to manage the net investment in foreign currencies as considered
necessary. Additionally, Energizer attempts to limit its U.S. dollar net
monetary liabilities in countries with unstable currencies. In March 2002,
Energizer contributed $8.4 of capital to its Argentine subsidiary sufficient to
repay all U.S. dollar liabilities in order to mitigate exposure to currency
exchange losses.
In terms of foreign currency translation risk, Energizer is exposed to the Swiss
franc, the Euro and other European currencies; the Mexican and Argentine peso
and other Latin American currencies; and the Singapore dollar, Chinese renminbi,
Australian and Hong Kong dollars, and other Asian currencies. Energizer's net
foreign currency investment in foreign subsidiaries and affiliates translated
into U.S. dollars using year-end exchange rates was $279.5 and $329.2 at
September 30, 2002 and 2001, respectively. The potential loss in value of
Energizer's net foreign currency investment in foreign subsidiaries resulting
from a hypothetical 10% adverse change in quoted foreign currency exchange rates
at September 30, 2002 and 2001 amounts to $28.0 and $32.9, respectively.
STOCK PRICE
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 covering 840,000 share equivalents in
Energizer deferred compensation plans. The change in fair value of these options
for the year resulted in income of $2.6, which was substantially offset by an
increase in the deferred compensation liability tied to the Energizer stock
price.
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 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 ongoing 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
ENR 2002 Annual Report PAGE 17
Energizer Holdings, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION Continued
(Dollars in millions except per share and percentage data)
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.
Recently Issued Accounting Standards
See discussion in Note 2 to the Consolidated Financial Statements.
Forward-Looking Information
Statements in the Management's Discussion and Analysis of Results of Operations
and Financial Condition and other sections of this Annual Report to Shareholders
that are not historical, particularly statements regarding Energizer's estimates
of its share of total United States retail alkaline market, its positioning to
meet consumer demand and the benefits of its portfolio of products, future cost
savings and operating efficiencies associated with Energizer's restructuring
activity, as well as the potential for future restructuring, the anticipated
adequacy of cash flows and Energizer's ability to meet liquidity requirements,
the impact of currency and economic declines in Latin America, and changes in
the value of local currencies, the adverse effect of inflationary pressures and
their impact on Energizer's operations, the impact of future expenditures for
environmental matters and environmental control equipment, the estimates of
Energizer's future tax rates, the impact of adverse changes in interest rates,
the market risk of foreign currency derivatives, and the potential loss in value
of Energizer's net foreign currency investment in foreign subsidiaries, 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 its United States alkaline market share may be inaccurate, or may
not reflect segments of the retail market. Shifts in consumer demands or needs,
competitive activity or product improvements, or further retailer
consolidations, may dilute or defeat the benefits of Energizer's consumer
positioning and strategy. 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 these activities. In addition,
expected improvements in operating efficiency may not materialize, and the cost
reductions actually realized as a result of restructuring activity may be less
significant than anticipated. The migration of demand from carbon zinc to
alkaline, or from alkaline to other technologies may increase the likelihood of
future restructuring activities and charges. Unforeseen fluctuations in levels
of Energizer's operating cash flows, or inability to maintain compliance with
its debt covenants, could limit Energizer's ability to meet future operating
expenses and liquidity requirements, fund capital expenditures or service its
debt as it becomes due. United States or international political or economic
crises could result in higher levels of inflation than anticipated, and
Energizer may not be able to realize cost reductions, productivity improvements
or price increases which are substantial enough to counter the inflationary
impact. Unknown environmental liabilities and greater than anticipated
remediation expenses or environmental control expenditures could have a material
impact on Energizer's financial position. Energizer's overall tax rate in future
years may be higher than anticipated because of unforeseen changes in the tax
laws or applicable rates, higher taxes on repatriated earnings, or increased
foreign losses. Economic turmoil and currency fluctuations could increase
Energizer's risk from unfavorable impacts on variable-rate debt, currency
derivatives and other financial instruments, as well as increase the potential
loss in value of its net foreign currency investment in foreign subsidiaries.
Additional risks and uncertainties include those detailed from time to time in
Energizer's publicly filed documents, including its Registration Statement on
Form 10, as amended, and its Current Report on Form 8-K dated April 25, 2000.
ENR 2002 Annual Report PAGE 18
Energizer Holdings, Inc.
SUMMARY SELECTED HISTORICAL FINANCIAL INFORMATION
(Dollars in millions except per share data)
STATEMENT OF EARNINGS DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,739.7 $ 1,694.2 $ 1,927.7 $ 1,878.5 $ 1,930.7
Depreciation and amortization(a) 57.4 79.8 82.0 94.9 101.2
Earnings from continuing operations before
income taxes(b) 278.4 31.5 279.2 248.2 262.5
Income taxes 92.0 70.5 99.0 88.4 54.3
Earnings/(loss) from continuing operations(c) 186.4 (39.0) 180.2 159.8 208.2
Net earnings/(loss) 186.4 (39.0) 181.4 80.0 164.7
Earnings/(loss) per share from continuing
operations:
Basic $ 2.05 $ (0.42) $ 1.88 $ 1.56 $ 2.05
Diluted $ 2.01 $ (0.42) $ 1.87 $ 1.56 $ 2.05
Average shares outstanding(d)
Basic 91.0 92.6 96.1 102.6 101.6
Diluted 92.8 94.1 96.3 102.6 101.6
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
SEPTEMBER 30, 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Working capital $ 353.3 $ 288.1 $ 401.7 $ 478.1 $ 478.5
Property at cost, net 455.7 476.1 485.4 472.8 476.9
Additions (during the period) 40.7 77.9 72.8 69.2 102.8
Depreciation (during the period) 57.4 58.6 57.9 68.4 74.1
Total assets 1,588.1 1,497.6 1,793.5 1,833.7 2,077.6
Long-term debt 160.0 225.0 370.0 1.9 1.3
</TABLE>
(a) Energizer adopted Statement of Financial Accounting Standards No. 142 at the
beginning of fiscal year 2002, which eliminated amortization of goodwill and
certain intangible assets. See Note 8 for further information.
(b) Earnings/(loss) from continuing operations before income taxes were
(reduced)/increased due to the following unusual items:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Provisions for restructuring and related costs $ (10.3) $ (29.8) $ -- $ (9.9) $ (21.3)
Kmart accounts receivable write-down (15.0) -- -- -- --
Gain on sale of property 6.3 -- -- -- --
Intellectual property rights income -- 20.0 -- -- --
Provision for goodwill impairment -- (119.0) -- -- --
Loss on disposition of Spanish affiliate -- -- (15.7) -- --
Costs related to spin-off -- -- (5.5) -- --
---------- ---------- ---------- ---------- ----------
Total $ (19.0) $ (128.8) $ (21.2) $ (9.9) $ (21.3)
========== ========== ========== ========== ==========
</TABLE>
(c) Earnings/(loss) from continuing operations were (reduced)/increased due to
the following unusual items:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Provisions for restructuring and related costs,
net of tax $ (7.8) $ (19.4) $ -- $ (8.3) $ (12.8)
Kmart accounts receivable write-down, net of tax (9.3) -- -- -- --
Gain on sale of property, net of tax 5.0 -- -- -- --
Tax benefits recognized in 2002 related to
prior years' losses 6.7 -- -- -- --
Intellectual property rights income, net of tax -- 12.3 -- -- --
Provision for goodwill impairment, net of tax -- (119.0) -- -- --
Loss on disposition of Spanish affiliate, net of tax -- -- (15.7) -- --
Costs related to spin-off, net of tax -- -- (3.3) -- --
Capital loss tax benefits -- -- 24.4 16.6 48.4
---------- ---------- ---------- ---------- ----------
Total $ (5.4) $ (126.1) $ 5.4 $ 8.3 $ 35.6
========== ========== ========== ========== ==========
</TABLE>
(d) Basic earnings per share for 2002 and 2001 is based on the weighted-average
number of shares outstanding during the period. Diluted earnings per share
for 2002 and 2001 is based on the weighted-average number of shares used in
the basic earnings per share calculation, adjusted for the dilutive effect
of stock options and restricted stock equivalents. Prior fiscal years are
based on the weighted-average number of shares outstanding of Ralston common
stock prior to the spin-off, adjusted in fiscal 2000 for the distribution of
one share of Energizer stock for each three shares of Ralston stock. In
fiscal 2001, the potentially dilutive securities were not included in the
dilutive earnings per share calculation due to their anti-dilutive effect.
ENR 2002 Annual Report PAGE 19
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The preparation and integrity of the financial statements of Energizer Holdings,
Inc. are the responsibility of its management. These statements have been
prepared in conformance with generally accepted accounting principles in the
United States of America, and in the opinion of management, fairly present
Energizer's financial position, results of operations and cash flows.
Energizer maintains accounting and internal control systems, which it believes
are adequate to provide reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition and that the financial records are
reliable for preparing financial statements. The selection and training of
qualified personnel, the establishment and communication of accounting and
administrative policies and procedures, and an extensive program of internal
audits are important elements of these control systems.
The report of PricewaterhouseCoopers LLP, independent accountants, on their
audits of the accompanying financial statements is shown below. This report
states that the audits were made in accordance with generally accepted auditing
standards in the United States of America. These standards include a study and
evaluation of internal control for the purpose of establishing a basis for
reliance thereon relative to the scope of their audits of the financial
statements.
The Board of Directors, through its Audit Committee consisting solely of
nonmanagement directors, meets periodically with management, internal audit and
the independent accountants to discuss audit and financial reporting matters. To
assure independence, PricewaterhouseCoopers LLP has direct access to the Audit
Committee.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Energizer Holdings, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings and comprehensive income, of cash flows and
of shareholders equity present fairly, in all material respects, the financial
position of Energizer Holdings, Inc. and its subsidiaries at September 30, 2002
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 2002, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of Energizer's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
October 28, 2002
ENR 2002 Annual Report PAGE 20
Energizer Holdings, Inc.
CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME
(Dollars in millions except per share data)
STATEMENT OF EARNINGS:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 1,739.7 $ 1,694.2 $ 1,927.7
Cost of products sold 963.8 999.1 1,044.0
Selling, general and administrative expense 307.0 320.3 344.8
Advertising and promotion expense 124.5 133.6 164.7
Research and development expense 37.1 46.4 49.9
Provision for goodwill impairment -- 119.0 --
Provisions for restructuring 7.7 29.8 --
Intellectual property rights income -- (20.0) --
Costs related to spin-off -- -- 5.5
Loss on disposition of Spanish affiliate -- -- 15.7
Interest expense 21.1 33.2 27.5
Net other financing items (income)/expense 0.1 1.3 (3.6)
---------- ---------- ----------
Earnings from continuing operations before income taxes 278.4 31.5 279.2
Income taxes (92.0) (70.5) (99.0)
---------- ---------- ----------
Earnings/(loss) from continuing operations 186.4 (39.0) 180.2
Net gain on disposition of discontinued operations -- -- 1.2
---------- ---------- ----------
Net earnings/(loss) $ 186.4 $ (39.0) $ 181.4
========== ========== ==========
EARNINGS PER SHARE:
Basic
Earnings/(loss) from continuing operations $ 2.05 $ (0.42) $ 1.88
Net gain on disposition of discontinued operations -- -- 0.01
---------- ---------- ----------
Net earnings/(loss) $ 2.05 $ (0.42) $ 1.89
========== ========== ==========
Diluted
Earnings/(loss) from continuing operations $ 2.01 $ (0.42) $ 1.87
Net gain on disposition of discontinued operations -- -- 0.01
---------- ---------- ----------
Net earnings/(loss) $ 2.01 $ (0.42) $ 1.88
========== ========== ==========
STATEMENT OF COMPREHENSIVE INCOME:
Net earnings/(loss) $ 186.4 $ (39.0) $ 181.4
Other comprehensive income, net of tax
Foreign currency translation adjustments 3.3 (8.6) (31.9)
Foreign currency reclassification adjustments -- -- 9.7
Minimum pension liability change, net of tax of $.3 in 2002 and $.7 in 2000 (0.6) -- (1.1)
---------- ---------- ----------
Comprehensive income/(loss) $ 189.1 $ (47.6) $ 158.1
========== ========== ==========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Consolidated Financial Statements.
ENR 2002 Annual Report PAGE 21
Energizer Holdings, Inc.
CONSOLIDATED BALANCE SHEET
(Dollars in millions except per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2002 2001
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 33.9 $ 23.0
Trade receivables, net 189.0 189.1
Inventories 359.0 361.3
Other current assets 306.0 209.9
---------- ----------
Total current assets 887.9 783.3
Property, plant and equipment, net 455.7 476.1
Other assets 244.5 238.2
---------- ----------
Total $ 1,588.1 $ 1,497.6
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities
Current maturities of long-term debt $ 15.0 $ --
Notes payable 94.6 110.3
Accounts payable 119.4 109.2
Other current liabilities 305.6 275.7
---------- ----------
Total current liabilities 534.6 495.2
Long-term debt 160.0 225.0
Other liabilities 188.7 169.5
Shareholders equity
Preferred stock - $.01 par value, none outstanding -- --
Common stock $.01 par value, issued 95,775,807 and
95,563,511 at 2002 and 2001, respectively 1.0 1.0
Additional paid-in capital 789.8 784.1
Retained earnings 202.4 17.5
Common stock in treasury, at cost, 7,320,419 shares
at 2002 and 3,844,700 shares at 2001 (176.0) (79.6)
Accumulated other comprehensive income (112.4) (115.1)
---------- ----------
Total shareholders equity 704.8 607.9
---------- ----------
Total $ 1,588.1 $ 1,497.6
========== ==========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Consolidated Financial Statements.
ENR 2002 Annual Report PAGE 22
Energizer Holdings, Inc.
CONSOLIDATED STATEMENT OF CASH FLOW
(Dollars in millions)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATIONS
Net earnings/(loss) $ 186.4 $ (39.0) $ 181.4
Adjustments to reconcile net earnings to net cash flow
from operations:
Depreciation and amortization 57.4 79.8 82.0
Translation and exchange loss 9.7 6.1 1.9
Deferred income taxes 6.7 0.3 5.9
Other non-cash charges 3.8 149.1 25.5
Net earnings from discontinued operations -- -- (1.2)
Sale of accounts receivable (86.2) (13.8) 100.0
Changes in assets and liabilities used in operations:
(Increase)/decrease in accounts receivable, net 85.4 (2.7) (25.3)
(Increase)/decrease in inventories 0.5 90.2 (90.8)
(Increase)/decrease in other current assets (86.0) 70.3 18.7
Increase/(decrease) in accounts payable 9.7 (27.3) 24.2
Increase/(decrease) in other current liabilities 22.9 11.2 (16.8)
Other, net (4.2) (6.1) (15.9)
---------- ---------- ----------
Cash flow from continuing operations 206.1 318.1 289.6
Cash flow from discontinued operations -- -- 54.7
---------- ---------- ----------
Net cash flow from operations 206.1 318.1 344.3
---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Property additions (40.7) (77.9) (72.8)
Proceeds from sale of OEM business -- -- 20.0
Proceeds from sale of assets 7.3 10.8 3.2
Other, net -- 1.8 (8.7)
---------- ---------- ----------
Cash used by investing activities from continuing operations (33.4) (65.3) (58.3)
Cash used by investing activities from discontinued operations -- -- (0.7)
---------- ---------- ----------
Net cash used by investing activities (33.4) (65.3) (59.0)
---------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Net cash proceeds from issuance of long-term debt -- -- 407.0
Principal payments on long-term debt (including
current maturities) (50.0) (145.0) (449.5)
Cash proceeds from issuance of notes payable with
maturities greater than 90 days 6.1 19.4 6.1
Cash payments on notes payable with maturities
greater than 90 days (13.3) (19.4) (3.7)
Net increase/(decrease) in notes payable with
maturities of 90 days or less (10.6) (20.1) (50.2)
Purchase of treasury stock (103.3) (79.6) --
Other, net 8.9 0.2 --
Net transactions with Ralston prior to spin-off -- -- (210.7)
---------- ---------- ----------
Net cash used by financing activities (162.2) (244.5) (301.0)
---------- ---------- ----------
Effect of exchange rate changes on cash 0.4 (1.2) (0.2)
---------- ---------- ----------
Net increase/(decrease) in cash and cash equivalents 10.9 7.1 (15.9)
Cash and cash equivalents, beginning of period 23.0 11.9 27.8
Cash and cash equivalents, international month-lag elimination (Note 2) -- 4.0 --
---------- ---------- ----------
Cash and cash equivalents, end of period $ 33.9 $ 23.0 $ 11.9
========== ========== ==========
Non-cash transactions:
Debt assigned by Ralston $ -- $ -- $ 478.0
========== ========== ==========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Consolidated Financial Statements.
ENR 2002 Annual Report PAGE 23
Energizer Holdings, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Dollars in millions, shares in thousands)
<TABLE>
<CAPTION>
DOLLARS SHARES
-------------------------------- ------------------------------------
2002 2001 2000 2002 2001 2000
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ralston's net investment:
Balance at beginning of year $ -- $ -- $ 1,312.9
Net earnings -- -- 121.6
Net transactions with Ralston -- -- (732.8)
Foreign currency translation
adjustment -- -- (1.4)
Distribution to Ralston's shareholders
at spin-off -- -- (700.3)
-------- -------- ----------
Ending balance -- -- --
Common stock:
Balance at beginning of year 1.0 1.0 -- 95,564 95,553 --
Distribution to Ralston's shareholders
at spin-off -- -- 1.0 -- -- 95,553
Activity under stock plans -- -- -- 212 11 --
-------- -------- ---------- ---------- ---------- ----------
Ending balance 1.0 1.0 1.0 95,776 95,564 95,553
Additional paid-in capital:
Balance at beginning of year 784.1 783.9 --
Distribution to Ralston's shareholders
at spin-off -- -- 783.9
Activity under stock plans 5.7 0.2 --
-------- -------- ----------
Ending balance 789.8 784.1 783.9
Retained earnings
Balance at beginning of year 17.5 59.8 --
Net earnings 186.4 (39.0) 59.8
Activity under stock plans (1.5) -- --
Elimination of international
one-month lag (Note 2) -- (3.3) --
-------- -------- ----------
Ending balance 202.4 17.5 59.8
Common stock in treasury:
Balance at beginning of year (79.6) -- -- (3,845) -- --
Treasury stock purchased (103.3) (79.6) -- (3,789) (3,845) --
Activity under stock plans 6.9 -- -- 314 -- --
-------- -------- ---------- ---------- ---------- ----------
Ending balance (176.0) (79.6) -- (7,320) (3,845) --
Accumulated other comprehensive income:
Cumulative translation adjustment:
Balance at beginning of year (114.0) (105.4) --
Distribution to Ralston's shareholders
at spin-off -- -- (84.6)
Foreign currency translation adjustment 3.3 (8.6) (20.8)
-------- -------- ----------
Ending Balance (110.7) (114.0) (105.4)
Minimum pension liability:
Balance at beginning of year (1.1) (1.1) --
Adjustment (0.6) -- (1.1)
-------- -------- ----------
Ending balance (1.7) (1.1) (1.1)
-------- -------- ----------
Total accumulated other comprehensive
income (112.4) (115.1) (106.5)
-------- -------- ----------
Total shareholders equity $ 704.8 $ 607.9 $ 738.2
======== ======== ==========
</TABLE>
The above financial statement should be read in conjunction with the Notes to
Consolidated Financial Statements.
ENR 2002 Annual Report PAGE 24
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)
1. Basis of Presentation
On June 10, 1999, the Board of Directors of Ralston Purina Company ("Ralston")
approved in principle a plan to spin off its battery business to the Ralston
stockholders. In September 1999, Energizer Holdings, Inc. ("Energizer") was
incorporated in Missouri as an indirect subsidiary of Ralston.
Effective April 1, 2000, Energizer became an independent, publicly owned company
as a result of the distribution by Ralston of Energizer's $.01 par value common
stock to the Ralston stockholders at a distribution ratio of one for three (the
spin-off). Prior to the spin-off, Energizer operated as a wholly owned
subsidiary of Ralston. Ralston received a ruling from the Internal Revenue
Service stating the distribution qualified as a tax-free spin-off.
Energizer is one of the world's largest manufacturers of primary batteries and
flashlights and a global leader in the dynamic business of providing portable
power. Energizer manufactures and/or markets a complete line of primary alkaline
and carbon zinc, miniature and rechargeable batteries primarily under the brands
Energizer e2, Energizer and Eveready, as well as specialty photo lithium
batteries, flashlights and other lighting products.
There has been a continuing shift in consumer preference from carbon zinc
batteries to higher powered, higher priced alkaline batteries. Alkaline
batteries are now the predominant primary battery in most parts of the world
except Asia and Africa. However, carbon zinc batteries continue to play a major
role in less developed countries throughout the world and offer Energizer market
position in those countries. Energizer uses its full portfolio of products to
better meet consumer needs.
Energizer and its subsidiaries operate 21 manufacturing and packaging facilities
in 14 countries on four continents. Its products are marketed and sold in more
than 150 countries primarily through a direct sales force, and also through
distributors, to mass merchandisers, wholesalers and other customers.
Energizer's operations are managed via four major geographic areas - North
America (the United States, Canada and Caribbean), Asia Pacific, Europe, and
South and Central America (including Mexico).
Financial statements as of and for periods after the spin-off are presented on a
consolidated basis. The Statement of Earnings and Statement of Cash Flows for
the year ended September 30, 2000 include the combined results of operations of
the Energizer businesses under Ralston for the six months prior to the spin-off
and the consolidated results of operations of Energizer on a stand-alone basis
for the six months ended September 30, 2000.
2. Summary of Significant Accounting Policies
Energizer's significant accounting policies, which conform to generally accepted
accounting principles in the United States and are applied on a consistent basis
among all years presented, except as indicated, are described below.
PRINCIPLES OF CONSOLIDATION The financial statements include the accounts of
Energizer and its majority-owned subsidiaries. All significant intercompany
transactions are eliminated. Investments in affiliated companies, 20% through
50% owned, are carried at equity. Prior to fiscal 2001, Energizer historically
reported results of international operations on a one-month lag. As such, fiscal
2000 amounts represent results of international operations for September through
August combined with the U.S. results for October through September. Beginning
in fiscal 2001, Energizer synchronized international operations' reporting to be
consistent with U.S. reporting. As a result, the September 2000 loss from
international operations of $3.3 was recorded directly to retained earnings. The
effect of the change is not significant to the cash flow, and as a result, the
year ended September 30, 2000 cash flow has not been adjusted.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION Financial statements of foreign operations where
the local currency is the functional currency are translated using end-of-period
exchange rates for assets and liabilities, and average exchange rates during the
period for results of operations. Related translation adjustments are reported
as a component within accumulated other comprehensive income in the shareholders
equity section of the Consolidated Balance Sheet.
For foreign operations where the U.S. dollar is the functional currency and for
countries that are considered highly inflationary, translation practices differ
in that inventories, properties, accumulated depreciation and depreciation
expense are translated at historical rates of exchange, and related translation
adjustments are included in earnings. Gains and losses from foreign currency
transactions are generally included in earnings.
FINANCIAL INSTRUMENTS AND DERIVATIVE SECURITIES Energizer uses financial
instruments, from time to time, in the management of foreign currency,
ENR 2002 Annual Report PAGE 25
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
interest rate and other risks that are inherent to its business operations. Such
instruments are not held or issued for trading purposes.
Foreign exchange (F/X) instruments, including currency forwards, purchased
options and zero-cost option collars, are used primarily to reduce transaction
exposures and, to a lesser extent, to manage other translation exposures. F/X
instruments used are selected based on their risk reduction attributes and the
related market conditions. The terms of such instruments are generally 12 months
or less.
For derivatives not designated as hedging instruments for accounting purposes,
realized and unrealized gains or losses from such instruments are recognized
currently in selling, general and administrative expenses or other financing
items, net in the Consolidated Statement of Earnings. Energizer has not
designated any financial instruments as hedges for accounting purposes in the
three years ended September 30, 2002.
CASH EQUIVALENTS For purposes of the Consolidated Statement of Cash Flows, cash
equivalents are considered to be all highly liquid investments with a maturity
of three months or less when purchased.
INVENTORIES Inventories are valued at the lower of cost or market, with cost
generally being determined using average cost or the first-in, first-out (FIFO)
method.
CAPITALIZED SOFTWARE COSTS Capitalized software costs are included in Other
Assets. These costs are amortized using the straight-line method over periods of
related benefit ranging from three to seven years.
PROPERTY AT COST Expenditures for new facilities and expenditures that
substantially increase the useful life of property, including interest during
construction, are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. When property is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts, and
gains or losses on the disposition are reflected in earnings.
DEPRECIATION Depreciation is generally provided on the straight-line basis by
charges to costs or expenses at rates based on estimated useful lives. Estimated
useful lives range from two to 25 years for machinery and equipment and three to
30 years for buildings. Depreciation expense was $57.4, $58.6 and $57.9 in 2002,
2001 and 2000, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS Prior to fiscal 2002, the cost of goodwill
and intangible assets was amortized on a straight-line basis, with periods of 25
and 40 years for goodwill and seven to 40 years for intangible assets and
recorded in selling, general and administrative expense. Beginning in fiscal
2002, goodwill and indefinite-lived intangibles are no longer amortized, but
evaluated annually for impairment as part of Energizer's annual business
planning cycle. The fair value of the reporting unit is estimated using the
discounted cash flow method.
IMPAIRMENT OF LONG-LIVED ASSETS Energizer reviews long-lived assets for
impairment whenever events or changes in business circumstances indicate that
the remaining useful life may warrant revision or that the carrying amount of
the long-lived asset may not be fully recoverable. Energizer performs
undiscounted cash flow analyses to determine if impairment exists. If impairment
is determined to exist, any related impairment loss is calculated based on fair
value. Impairment losses on assets to be disposed of, if any, are based on the
estimated proceeds to be received, less costs of disposal.
REVENUE RECOGNITION Revenue is recognized in accordance with terms of sale,
which is generally upon shipment of product to or upon receipt of product by
customers. Energizer provides its customers a variety of programs designed to
promote sales of its products. Promotional payments and allowances that
represent primarily a reduction in price paid by either a retail customer,
distributor, wholesaler or ultimate consumer are recorded in net sales. The
provision for doubtful accounts is included in selling, general and
administrative expenses in the Consolidated Statement of Earnings.
ADVERTISING AND PROMOTION COSTS Energizer advertises and promotes its products
through national and regional media. Energizer expenses advertising and
promotion in the year such costs are incurred. Due to the seasonality of the
business, with typically higher sales and volume during the holidays in the
first quarter, advertising and promotion costs incurred during interim periods
are generally expensed ratably in relation to revenues.
RECLASSIFICATIONS Certain reclassifications have been made to the prior year
financial statements to conform to the current presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS 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. 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. Energizer determined that the
adoption of SFAS 144 will not have a material effect on its financial
statements.
ENR 2002 Annual Report PAGE 26
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.
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 supercedes EITF Issue No. 94-3 and provides direction for accounting and
disclosure regarding specific costs related to an exit or disposal activity.
This standard requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include, but are not limited to lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Energizer is
required to adopt SFAS 146 for any disposal activities initiated after December
31, 2002, although early adoption is allowed. Energizer determined that the
adoption of SFAS 146 will not have a material effect on its financial
statements, but it may change the period in which future restructuring
provisions are recorded.
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.
Reclassifications were necessary from net sales to cost of products sold and
were $34.4 and $36.1 for 2001 and 2000, respectively. In addition, warehousing
costs in selling, general and administrative expense of $31.1 and $33.2 in 2001
and 2000, 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.
Reclassifications were necessary from advertising and promotion expense to net
sales and were $28.3 and $22.7 for 2001 and 2000, respectively. There was no
impact to net earnings.
3. Related Party Activity
CASH MANAGEMENT Prior to the spin-off, Energizer participated in a centralized
cash management system administered by Ralston. Cash deposits from Energizer
were transferred to Ralston on a daily basis and Ralston funded Energizer's
disbursement bank accounts as required. Unpaid balances of checks were included
in accounts payable. No interest was charged or credited on transactions with
Ralston.
SHARED SERVICES Energizer and Ralston entered into a Bridging Agreement under
which Ralston continued to provide certain general and administrative services
to Energizer, including systems, benefits and advertising. Ralston also provided
facilities for Energizer's headquarters through July 31, 2001, when Energizer
relocated its headquarters. Prior to the spin-off, the expenses related to
shared services listed above, as well as legal and financial support services,
were allocated to Energizer generally based on utilization, which management
believes to be reasonable. Costs of these shared services charged to Energizer
were $9.6 for the six months ended March 31, 2000.
RALSTON'S NET INVESTMENT Included in Ralston's Net Investment are cumulative
translation adjustments for non-hyperinflationary countries of $84.6 as of March
31, 2000 representing net devaluation of currencies relative to the U.S. dollar
over the period of investment. Also included in Ralston's Net Investment are
accounts payable and receivable between Energizer and Ralston.
4. Discontinued Operations
On November 1, 1999, Energizer's OEM rechargeable battery business was sold to
Moltech Corporation and was recorded as a discontinued operation in Energizer's
consolidated financial statements. In fiscal 2000, Energizer recognized an
after-tax gain of $1.2 on the disposition of discontinued operations related to
the final settlement of the sale to Moltech Corporation.
5. Restructuring Activities
In March 2002, Energizer adopted a restructuring plan to reorganize certain
European selling, management, administrative and packaging activities. The total
cost of this plan was $6.7 before taxes, of which $4.5, or $2.9 after-tax, was
recorded in the second quarter of fiscal 2002 and $2.2, before and after-tax,
was recorded during the fourth quarter of fiscal 2002. These restructuring
charges consist of $5.2 for cash severance payments, $1.0 of other cash charges
and $.5 in enhanced pension benefits. As of September 30, 2002, 10 of a total of
64 employees have been terminated in connection with the 2002 plans. The plan is
expected to be complete by the end of fiscal 2003.
Because of a continued migration of consumer demand from carbon zinc to alkaline
batteries, Energizer undertook and completed in the fourth quarter of fiscal
2001 a comprehensive study of its carbon zinc manufacturing plant locations and
capacities. Energizer also reviewed its worldwide operations in light of
competitive market conditions and
ENR 2002 Annual Report PAGE 27
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
available technologies and techniques. During fiscal 2001, Energizer adopted
restructuring plans to eliminate carbon zinc capacity, and to reduce and realign
certain selling, production, research and administrative functions. The total
cost associated with this plan was $33.4 before taxes, of which $29.8, or $19.4
after-tax, was recorded in the fourth quarter of fiscal 2001. In the first
quarter of fiscal 2002, Energizer ceased production and terminated substantially
all of its employees at its Mexican carbon zinc production facility. Energizer
also continued execution of other previously announced restructuring actions.
Energizer recorded provisions for restructuring of $1.4, or $0.9 after-tax, as
well as related costs for accelerated depreciation and inventory obsolescence of
$2.6, or $2.0 after-tax, which was recorded in cost of products sold in the
first quarter of fiscal 2002. In addition, Energizer recorded net reversals of
previously recorded excess restructuring charges of $.4, or $.2 after-tax,
during the fourth quarter of fiscal 2002.
The 2001 restructuring plans improved Energizer's operating efficiency,
downsized and centralized corporate functions, and decreased costs. One carbon
zinc production facility in Mexico was closed. A total of 539 employees were
terminated, consisting of 340 production and 199 sales, research and
administrative employees, primarily in the United States and South and Central
America.
The restructuring charges for the 2001 plan consist of non-cash fixed asset
impairment charges of $10.6 for the closed carbon zinc plant and production
equipment, enhanced pension benefits for certain terminated U.S. employees of
$8.3, cash severance payments of $7.6, other cash charges of $4.2, and $2.6 of
other related costs for accelerated depreciation and inventory obsolescence
recorded in cost of products sold.
Prior to fiscal 2000, Energizer adopted restructuring plans. All activities
associated with such plans, except disposition of certain assets held for
disposal, had been completed as of September 30, 2000.
The carrying value of assets held for disposal under restructuring plans was
$1.3 at September 30, 2002.
The following table presents, by major cost component and by year of provision,
activity related to the restructuring charges discussed above during fiscal
years 2002, 2001 and 2000, including any adjustments to the original charges:
<TABLE>
<CAPTION>
2000 ROLLFORWARD 2001 ROLLFORWARD
---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING PROVISION/ ENDING BEGINNING PROVISION/ ENDING
BALANCE (REVERSALS) ACTIVITY BALANCE BALANCE (REVERSALS) ACTIVITY BALANCE
---------- ----------- -------- -------- ---------- ----------- -------- --------
PRIOR PLANS
Termination benefits $ 6.4 $ - $ (6.4) $ - $ - $ - $ - $ -
Other cash costs. . . 4.9 - (1.0) 3.9 3.9 - (3.9) -
------ ------ -------- -------- ---------- ---------- ---------- --------
Total . . . 11.3 - (7.4) 3.9 3.9 - (3.9) -
------ ------ -------- -------- ---------- ---------- ---------- --------
2001 PLAN
Termination benefits. - - - - - 14.6 (9.3) 5.3
Other cash costs. - - - - - 4.1 (0.2) 3.9
Fixed asset impairments - - - - - 11.1 (11.1) -
------ ------ -------- -------- --------- ---------- ---------- --------
Total . - - - - - 29.8 (20.6) 9.2
------ ------ -------- -------- --------- ---------- ---------- --------
2002 PLAN
Termination benefits.. - - - - - - - -
Other cash costs. - - - - - - - -
------ ------ -------- -------- --------- ---------- --------- --------
Total - - - - - - - -
------ ------ -------- -------- --------- ---------- --------- --------
GRAND TOTAL . $11.3 $ - $ (7.4) $ 3.9 $ 3.9 $ 29.8 $(24.5) $ 9.2
====== ====== ======== ======== ========= ========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
BEGINNING PROVISION/ ENDING
<S> <C> <C> <C> <C>
BALANCE (REVERSALS) ACTIVITY BALANCE
---------- ------------ ---------- --------
PRIOR PLANS
Termination benefits. . $ - $ - $ - $ -
Other cash costs. . . . - - - -
---------- ------------ ---------- --------
Total . . . . . . . . . - - - -
---------- ------------ ---------- --------
2001 PLAN
Termination benefits. . 5.3 1.3 (5.7) 0.9
Other cash costs. . . . 3.9 0.1 (3.8) 0.2
Fixed asset impairments - (0.4) 0.4 -
---------- ------------ ---------- --------
Total . . . . . . . . . 9.2 1.0 (9.1) 1.1
---------- ------------ ---------- --------
2002 PLAN
Termination benefits. . - 5.7 (0.3) 5.4
Other cash costs. . . . - 1.0 (0.2) 0.8
---------- ------------ ---------- --------
Total . . . . . . . . . - 6.7 (0.5) 6.2
---------- ------------ ---------- --------
GRAND TOTAL . $ 9.2 $ 7.7 $ (9.6) $ 7.3
========== ============ ========== ========
</TABLE>
ENR 2002 Annual Report PAGE 28
6. Accounts Receivable Write-down
On January 23, 2002, Kmart filed for Chapter 11 bankruptcy protection.
Energizer's Special Purpose Entity (SPE) (see Note 15) had pre-petition accounts
receivable from Kmart Corporation of $20.0. In the year ended September 30,
2002, Energizer recorded total charges related to such receivables of $15.0
pre-tax, or $9.3 after-tax. It is not yet known what portion, if any, of the
balance will be collected.
7. Intellectual Property Rights Income
In fiscal 2001, Energizer recorded income of $20.0 pre-tax, or $12.3 after-tax,
related to the licensing of intellectual property rights.
8. Goodwill and Intangible Assets and Amortization
Energizer monitors changing business conditions, which may indicate that the
remaining useful life of goodwill and other intangible assets may warrant
revision or carrying amounts may require adjustment. Continuing unfavorable
business trends in Europe and the unfavorable costs of U.S. dollar-based
products resulting from currency declines represented such conditions. As part
of its annual business planning cycle, Energizer performed an evaluation of its
European business in the fourth quarter of fiscal 2001, which resulted in a
provision for goodwill impairment of $119.0. As of September 30, 2001, the
remaining carrying amount of goodwill related to Energizer's European business
after the provision for impairment was $8.5.
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
its useful life.
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. As
part of its business planning cycle in the fourth quarter of fiscal 2002,
Energizer completed its impairment test of goodwill and intangibles, which
resulted in no impairment. The fair value of the reporting unit was estimated
using the discounted cash flow method.
ENR 2002 Annual Report PAGE 29
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
The following table represents the carrying amount of goodwill and trademarks by
segment at September 30, 2002:
<TABLE>
<CAPTION>
South &
North Central
America Asia Europe America Total
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Goodwill $ 24.7 $ 0.9 $ 9.1 $ 2.7 $ 37.4
======== ======== ======== ======== ========
Trademarks - Gross 413.8 24.3 -- -- 438.1
Trademarks - Accum. amortization (354.4) (9.8) -- -- (364.2)
-------- -------- -------- -------- --------
Trademarks - Net carrying amount $ 59.4 $ 14.5 $ -- $ -- $ 73.9
======== ======== ======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 2001 2000
------------ ------------
<S> <C> <C>
NET EARNINGS/(LOSS):
As reported $ (39.0) $ 181.4
Goodwill amortization, net of tax 12.1 13.6
Intangible asset amortization, net of tax 3.0 3.0
------------ ------------
Adjusted net earnings/(loss) $ (23.9) $ 198.0
============ ============
BASIC EARNINGS/(LOSS) PER SHARE:
As reported $ (0.42) $ 1.89
Goodwill amortization, net of tax 0.13 0.14
Intangible asset amortization, net of tax 0.03 0.03
------------ ------------
Adjusted basic earnings/(loss) per share $ (0.26) $ 2.06
============ ============
DILUTED EARNINGS/(LOSS) PER SHARE (a):
As reported $ (0.42) $ 1.88
Goodwill amortization, net of tax 0.13 0.14
Intangible asset amortization, net of tax 0.03 0.03
------------ ------------
Adjusted diluted earnings/(loss) per share $ (0.26) $ 2.05
============ ============
Basic shares 92.6 96.1
Diluted shares 94.1 96.3
</TABLE>
(a) For fiscal year 2001, the potentially dilutive securities were not included
in the dilutive earnings per share calculation due to their anti-dilutive
effect.
ENR 2002 Annual Report PAGE 30
9. Income Taxes
The provisions for income taxes consisted of the following for the years ended
September 30:
<TABLE>
<CAPTION>
2002 2001 2000
------------ ------------ ---------------------------
Continuing
Consolidated Consolidated Operations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Currently payable:
United States $ 52.5 $ 42.8 $ 47.5 $ 45.2
State 8.4 5.4 9.0 8.7
Foreign 24.4 22.0 36.6 36.6
------------ ------------ ------------ ------------
Total current 85.3 70.2 93.1 90.5
------------ ------------ ------------ ------------
Deferred:
United States 7.7 1.2 1.2 1.2
State 1.2 0.1 0.2 0.2
Foreign (2.2) (1.0) 4.5 4.5
------------ ------------ ------------ ------------
Total deferred 6.7 0.3 5.9 5.9
------------ ------------ ------------ ------------
Provision for income taxes $ 92.0 $ 70.5 $ 99.0 $ 96.4
============ ============ ============ ============
</TABLE>
The source of pre-tax earnings was:
<TABLE>
<CAPTION>
2002 2001 2000
------------ ------------ ---------------------------
Continuing
Consolidated Consolidated Operations Consolidated
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
United States $ 191.3 $ 118.2 $ 201.9 $ 200.5
Foreign 87.1 (86.7) 77.3 77.3
------------ ------------ ------------ ------------
Pre-tax earnings $ 278.4 $ 31.5 $ 279.2 $ 277.8
============ ============ ============ ============
</TABLE>
A reconciliation of income taxes with the amounts computed at the statutory
federal rate follows:
<TABLE>
<CAPTION>
2002 2001 2000
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at federal statutory rate $97.4 35.0% $ 11.0 35.0% $ 97.7 35.0%
State income taxes, net of federal tax benefit 6.2 2.2 3.9 12.4 6.0 2.1
Foreign tax in excess of/(less than) the
domestic rate (5.6) (2.0) 9.4 29.7 4.3 1.6
Foreign benefits recognized related to
prior years' losses (6.7) (2.4) (3.5) (11.1) (0.5) (0.2)
Taxes on repatriation of foreign earnings 2.5 0.9 5.2 16.5 6.4 2.3
Foreign sales corporation benefit -- -- (1.2) (3.8) (2.0) (0.7)
Nondeductible goodwill -- -- 4.1 13.0 5.2 1.9
Provision for goodwill impairment -- -- 41.7 132.4 -- --
Net tax benefit on sale of Spanish affiliate
in excess of federal rate -- -- -- -- (18.9) (6.7)
Other, net (1.8) (0.6) (0.1) (0.3) 0.8 0.2
-------- -------- -------- -------- -------- --------
$ 92.0 33.1% $ 70.5 223.8% $ 99.0 35.5%
======== ======== ======== ======== ======== ========
</TABLE>
ENR 2002 Annual Report Page 31
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
In 2001, Energizer recorded a provision for goodwill impairment of $119.0, for
which there is no associated tax provision or benefit. See further discussion in
Note 8.
Prior to spin-off, U.S. income tax payments, refunds, credits, provision and
deferred tax components have been allocated to Energizer in accordance with
Ralston's tax allocation policy. Such policy allocates tax components included
in the consolidated income tax return of Ralston to Energizer to the extent such
components were generated by or related to Energizer. Subsequent to the
spin-off, taxes are provided on a stand-alone basis.
Had the Energizer tax provision been calculated as if Energizer was a separate,
independent U.S. taxpayer, the income tax provision would have been higher by
approximately $23.4 in 2000. The higher provision is due primarily to the $24.4
of capital loss benefits related to the sale of Energizer's Spanish affiliate
that would not have been realized on a stand-alone basis.
The deferred tax assets and deferred tax liabilities recorded on the balance
sheet as of September 30 are as follows and include current and noncurrent
amounts:
<TABLE>
<CAPTION>
2002 2001
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and property differences $ (74.2) $ (61.1)
Pension plans (43.2) (38.4)
Other tax liabilities, noncurrent (28.1) (14.5)
------------ ------------
Gross deferred tax liabilities (145.5) (114.0)
------------ ------------
Deferred tax assets:
Accrued liabilities 72.0 58.8
Tax loss carryforwards and tax credits 38.1 28.6
Intangible assets 48.3 46.9
Postretirement benefits other than pensions 34.6 35.3
Inventory differences 3.5 4.0
Other tax assets, noncurrent 7.1 7.5
------------ ------------
Gross deferred tax assets 203.6 181.1
------------ ------------
Valuation allowance (32.5) (35.1)
------------ ------------
Net deferred tax assets $ 25.6 $ 32.0
============ ============
</TABLE>
Tax loss carryforwards of $.9 expired in 2002. Future expiration of tax loss
carryforwards and tax credits, if not utilized, are as follows: 2003, $2.8;
2004, $3.3; 2005, $4.5; 2006, $3.0; 2007, $7.2; thereafter or no expiration,
$17.3. The valuation allowance is primarily attributed to certain accrued
liabilities, tax loss carryforwards and tax credits outside the United States.
The valuation allowance decreased $2.6 in 2002 primarily due to tax loss
carryforwards and tax credits utilized in 2002.
At September 30, 2002, approximately $121.5 of foreign subsidiary net earnings
was considered permanently invested in those businesses. Accordingly, U.S.
income taxes have not been provided for such earnings. It is not practicable to
determine the amount of unrecognized deferred tax liabilities associated with
such earnings.
ENR 2002 Annual Report PAGE 32
10. Earnings Per Share
For fiscal 2002 and 2001, basic earnings per share is based on the average
number of 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. In fiscal 2001, the potentially dilutive securities were not
included in the dilutive earnings per share calculation due to their
anti-dilutive effect.
Earnings per share has been calculated using Energizer's historical basis
earnings for fiscal 2000. For the year ended September 30, 2000, the number of
shares used to compute basic earnings per share is based on the weighted-average
number of shares of Ralston stock outstanding during the six months ended March
31, 2000 (adjusted for the distribution of one share of Energizer stock for each
three shares of Ralston stock) and the weighted-average number of shares of
Energizer stock outstanding from April 1, 2000 to September 30, 2000.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30, 2002 2001 2000
-------- -------- --------
<S> <C> <C> <C>
Numerator
Numerator for basic and dilutive earnings per share -
Earnings/(loss) from continuing operations $ 186.4 $ (39.0) $ 180.2
Net gain on disposition of discontinued operations -- -- 1.2
-------- -------- --------
Net earnings/(loss) $ 186.4 $ (39.0) $ 181.4
======== ======== ========
Denominator
Denominator for basic earnings per share -
Weighted-average shares 91.0 92.6 96.1
-------- -------- --------
Effect of dilutive securities
Stock options 1.2 1.0 0.1
Restricted stock equivalents 0.6 0.5 0.1
-------- -------- --------
Total dilutive securities 1.8 1.5 0.2
-------- -------- --------
Denominator for dilutive earnings per share -
Weighted-average shares and assumed conversions 92.8 94.1 96.3
======== ======== ========
Basic earnings per share
Earnings/(loss) from continuing operations $ 2.05 $ (0.42) $ 1.88
Net gain on disposition of discontinued operations -- -- 0.01
-------- -------- --------
Net earnings/(loss) $ 2.05 $ (0.42) $ 1.89
======== ======== ========
Diluted earnings per share
Earnings/(loss) from continuing operations $ 2.01 $ (0.42) $ 1.87
Net gain on disposition of discontinued operations -- -- 0.01
-------- -------- --------
Net earnings/(loss) $ 2.01 $ (0.42) $ 1.88
======== ======== ========
</TABLE>
ENR 2002 Annual Report PAGE 33
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
11. Stock-Based Compensation
Energizer's 2000 Incentive Stock Plan (the Plan) was adopted by the Board of
Directors in March 2000 and approved by shareholders, with respect to future
awards which may be granted under the Plan, at the 2001 Annual Meeting of
Shareholders. Under the Plan, awards to purchase shares of Energizer's common
stock (ENR stock) may be granted to directors, officers and key employees. A
maximum of 15.0 million shares of ENR stock was approved to be issued under the
Plan. At September 30, 2002, 2001 and 2000, respectively, there were 6.1
million, 6.6 million and 7.0 million shares available for future awards.
Options that have been granted under the Plan have been granted at the market
price on the grant date and generally vest ratably over three to five years.
Awards have a maximum term of 10 years.
Restricted stock and restricted stock equivalent awards may also be granted
under the Plan. During 2002 and 2000, the Board of Directors approved the grants
of up to 20,000 and 635,000 restricted stock equivalents, respectively to a
group of key employees and directors upon their purchase of an equal number of
shares of ENR stock within a specified period. The restricted stock equivalents
will vest three years from their respective dates of grant and will convert into
unrestricted shares of ENR stock at that time, or, at the recipient's election,
will convert at the time of the recipient's retirement or other termination of
employment. During fiscal 2002, 2001 and 2000, respectively, 37,700, 120,885 and
488,415 restricted stock equivalents had been granted. The weighted-average fair
value for restricted stock equivalents granted in 2002, 2001 and 2000 was
$18.97, $19.94 and $18.30, respectively.
Under the terms of the Plan, option shares and prices, and restricted stock and
stock equivalent awards, are adjusted in conjunction with stock splits and other
recapitalizations so that the holder is in the same economic position before and
after these equity transactions.
Energizer also permits deferrals of bonus and salary and, for directors,
retainers and fees, under the terms of its Deferred Compensation Plan. Under
this plan, employees or directors deferring amounts into the Energizer Common
Stock Unit Fund are credited with a number of stock equivalents based on the
fair value of ENR stock at the time of deferral. In addition, the participants
were credited with an additional number of stock equivalents, equal to 25% for
employees and 33 1/3% for directors, of the amount deferred. This additional
company match vests immediately for directors and three years from the date of
initial crediting for employees. Amounts deferred into the Energizer Common
Stock Unit Fund, and vested company matching deferrals, may be transferred to
other investment options offered under the plan. At the time of termination of
employment, or for directors, at the time of termination of service on the
Board, or at such other time for distribution which may be elected in advance by
the participant, the number of equivalents then credited to the participant's
account is determined and then an amount in cash equal to the fair value of an
equivalent number of shares of ENR stock is paid to the participant.
Energizer applies APB 25 and related interpretations in accounting for its
stock-based compensation. Charges to earnings for stock-based compensation were
$4.4, $4.1 and $4.8 in 2002, 2001 and 2000, respectively. Had cost for
stock-based compensation been determined based on the fair value method set
forth under SFAS 123, Energizer's net earnings and earnings per share would have
been reduced to the pro forma amounts indicated in the table below. Pro forma
amounts are for disclosure purposes only and may not be representative of future
calculations.
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings/(loss):
As reported $ 186.4 $ (39.0) $ 181.4
Pro forma $ 178.4 $ (53.0) $ 176.1
Basic earnings/(loss) per share:
As reported $ 2.05 $ (0.42) $ 1.89
Pro forma $ 1.96 $ (0.57) $ 1.83
Diluted earnings/(loss) per share:
As reported $ 2.01 $ (0.42) $ 1.88
Pro forma $ 1.92 $ (0.57) $ 1.83
</TABLE>
The weighted-average fair value of options granted in fiscal 2002, 2001 and 2000
was $9.65, $7.51 and $7.13 per option, respectively. This was estimated at the
grant date using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate 4.70% 4.90% 5.85%
Expected life of option 7.5 years 7.5 years 7.5 years
Expected volatility of ENR stock 19.0% 19.3% 20.3%
Expected dividend yield on ENR stock --% --% --%
</TABLE>
ENR 2002 Annual Report PAGE 34
A summary of nonqualified ENR stock options outstanding is as follows (shares in
millions):
<TABLE>
<CAPTION>
2002 2001 2000
----------------------------- ----------------------------- -----------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
---------- -------------- ---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding on October 1, 7.71 $ 17.54 7.37 $ 17.41 -- $ --
Granted 0.52 26.34 0.38 20.30 7.37 17.41
Exercised (0.52) 17.31 (0.01) 17.00 -- --
Cancelled (0.02) 19.80 (0.03) 20.00 -- --
------ ---------- ----------
Outstanding on September 30, 7.69 18.14 7.71 17.54 7.37 17.41
------ ---------- ---------- ---------- ---------- ----------
Exercisable on September 30, 3.04 $ 17.52 1.62 $ 17.43 -- $ --
</TABLE>
Information about ENR nonqualified options at September 30, 2002 is summarized
below (shares in millions):
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
------------------------------------------- -------------------------
Weighted-Average
Remaining
Contractual Life Weighted-Average Weighted-Average
Range of Exercise Prices Shares (Years) Exercise Price Shares Exercise Price
- ------------------------ ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$16.81 to $21.06 7.31 7.7 $ 17.58 3.04 $ 17.52
$25.05 to $30.10 0.38 9.9 28.97 -- --
------ -----
$16.81 to $30.10 7.69 7.8 18.14 3.04 17.52
====== =====
</TABLE>
12. Pension Plans and Other Postretirement Benefits
Energizer has several defined benefit pension plans covering substantially all
of its employees in the United States and certain employees in other countries.
The plans provide retirement benefits based on years of service and earnings.
Energizer also sponsors or participates in a number of other non-U.S. pension
arrangements, including various retirement and termination benefit plans, some
of which are required by local law or coordinated with government-sponsored
plans, which are not significant in the aggregate and therefore are not included
in the information presented below.
Energizer currently provides other postretirement benefits, consisting of
healthcare and life insurance benefits for certain groups of retired employees.
Retiree contributions for healthcare benefits are adjusted periodically, as
total costs of the program change. In prior years, Energizer has increased its
contributions for healthcare benefits to partially mitigate the impact of
increased medical costs to eligible retirees, although there is no requirement
in Energizer's retiree health plan to do so. The benefit obligation as of the
beginning of fiscal 2001 and prior was computed assuming such increases continue
in the future. In fiscal 2001, the plan was amended such that there will not be
an increase in Energizer's contribution rate beyond the level of subsidy to be
provided for in calendar 2002. The impact of this amendment was a reduction of
the projected benefit obligation of $39.4.
Prior to the spin-off, Energizer employees participated in Ralston's defined
benefit plans. In addition, certain groups of retirees and management employees
were eligible for certain postretirement benefits provided by Ralston.
ENR 2002 Annual Report Page 35
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
The following tables present the benefit obligation and funded status of the
plans:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
------------------- -------------------
SEPTEMBER 30, 2002 2001 2002 2001
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 405.4 $ 351.6 $ 54.4 $ 83.7
Service cost 16.6 16.6 0.1 0.2
Interest cost 26.5 24.5 3.6 6.1
Plan participants' contributions 0.6 0.5 -- --
Actuarial (gain)/loss 20.1 20.3 (5.7) 5.8
Benefits paid (32.7) (18.4) (2.7) (1.8)
Foreign currency exchange rate changes 5.1 2.0 -- (0.2)
Special termination benefits -- 8.3 -- --
Amendments -- -- -- (39.4)
-------- -------- -------- --------
Benefit obligation at end of year $ 441.6 $ 405.4 $ 49.7 $ 54.4
======== ======== ======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 495.4 $ 557.7 $ 2.3 $ 1.9
Actual return on plan assets (7.9) (49.0) -- 0.4
Company contributions 2.5 2.6 2.7 1.8
Plan participants' contributions 0.6 0.5 2.7 2.0
Benefits paid (32.7) (18.4) (5.5) (3.8)
Foreign currency exchange rate changes 5.1 2.0 0.1 --
-------- -------- -------- --------
Fair value of plan assets at end of year $ 463.0 $ 495.4 $ 2.3 $ 2.3
======== ======== ======== ========
FUNDED STATUS:
Funded status of the plan $ 21.4 $ 90.0 $ (47.4) $ (52.1)
Unrecognized net loss/(gain) 87.1 6.7 (2.6) 3.1
Unrecognized prior service cost 0.2 0.2 (40.3) (42.7)
Unrecognized net transition asset 1.4 1.3 -- --
-------- -------- -------- --------
Prepaid/(accrued) benefit cost $ 110.1 $ 98.2 $ (90.3) $ (91.7)
======== ======== ======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET:
Prepaid benefit cost $ 119.8 $ 106.2 $ -- $ --
Accrued benefit liability (12.6) (10.0) (90.3) (91.7)
Intangible asset 0.2 0.2 -- --
Accumulated other comprehensive income 2.7 1.8 -- --
-------- -------- -------- --------
Net amount recognized $ 110.1 $ 98.2 $ (90.3) $ (91.7)
======== ======== ======== ========
</TABLE>
The accumulated benefit obligation and fair value of plan assets for the pension
plans with accumulated benefit obligations in excess of plan assets were $61.3
and $41.3, respectively, as of September 30, 2002 and $11.0 and zero,
respectively, as of September 30, 2001.
Pension assets consist primarily of listed common stocks and bonds. The U.S.
plan held 1.7 million shares of ENR stock in both 2002 and 2001. The market
value of such stock was $52.6 and $28.8, at September 30, 2002 and 2001,
respectively.
ENR 2002 Annual Report PAGE 36
The following table presents pension and postretirement expense for fiscal 2002
and 2001:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
------------------- -------------------
SEPTEMBER 30, 2002 2001 2002 2001
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Service cost $ 16.6 $ 16.6 $ 0.1 $ 0.2
Interest cost 26.5 24.5 3.6 6.1
Expected return on plan assets (48.9) (46.9) -- --
Amortization of unrecognized prior service cost -- -- (2.4) (0.3)
Amortization of unrecognized transition asset 0.3 0.3 -- --
Recognized net actuarial (gain)/loss (1.3) (3.3) -- --
-------- -------- -------- --------
Net periodic benefit cost/(income) $ (6.8) $ (8.8) $ 1.3 $ 6.0
======== ======== ======== ========
</TABLE>
The following table presents assumptions, which reflect weighted-averages for
the component plans, used in determining the above information:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
------------------- ------------------
2002 2001 2002 2001
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Discount rate 6.2% 6.6% 6.5% 7.0%
Expected return on plan assets 8.3% 8.7% -- --
Compensation increase rate 4.7% 5.2% -- --
</TABLE>
Assumed healthcare cost trend rates have been used in the valuation of
postretirement health insurance benefits for the beginning of the 2001
valuation. The trend rate used for those periods was 6.5%. Due to the amendment
to the postretirement plan discussed above, cost trend rates no longer
materially impact the plan.
PRE-SPIN PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
Prior to the spin-off, Energizer participated in Ralston's noncontributory
defined benefit pension plans (Plans), which covered substantially all regular
employees in the United States and certain employees in other countries.
Effective January 1, 1999, assets of the Plans provide employee benefits in
addition to normal retirement benefits. The additional benefit was equal to a
300% match on participants' after-tax contributions of 1% or 1.75% to the
Savings Investment Plan. The amount allocated to Energizer was based on
Energizer's percentage of the total liability of the Plans and was income of
$2.1 in 2000.
Prior to the spin-off, Ralston provided healthcare and life insurance benefits
for certain groups of retired Energizer employees. The cost of these benefits
was allocated to Energizer based on Energizer's percentage of the total
liability related to these benefits. Ralston also sponsored plans whereby
certain management employees could defer compensation for cash benefits after
retirement. The cost of these postretirement benefits was $3.3 in 2000.
13. Defined Contribution Plan
Energizer sponsors employee savings plans, which cover substantially all U.S.
employees. Energizer matches 50% of participants' before-tax contributions up to
6% of compensation. In addition, participants can make after-tax contributions
of 1% of compensation into the savings plan. The participant's after-tax
contribution is matched within the pension plan at 325%. Amounts charged to
expense during fiscal 2002 and 2001 were $4.0 and $3.8, respectively. Subsequent
to the spin-off from Ralston, Energizer charged $1.8 to expense in fiscal 2000.
Prior to the spin-off, substantially all regular Energizer employees in the
United States were eligible to participate in the Ralston-sponsored defined
contribution plans. Participant contributions were matched in accordance with
Ralston's plan terms. Prior to the spin-off, Energizer recorded costs as
allocated by Ralston. The amount of such costs was $1.2 for the six months ended
March 31, 2000.
14. Debt
Immediately prior to the spin-off, Ralston borrowed $478.0 through several
interim-funding facilities and assigned all repayment obligations of those
facilities to Energizer. In April and May 2000, Energizer entered into separate
financing agreements, including an agreement to sell domestic trade receivables
as discussed in Note 15 below, and repaid the interim-funding facilities.
Notes payable at September 30, 2002 and 2001 consisted of notes payable to
financial institutions with original maturities of less than one year of $94.6
and $110.3, respectively, and had a weighted-average interest rate of 3.8% and
6.9%, respectively.
ENR 2002 Annual Report PAGE 37
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Dollars in millions, except per share data)
The detail of long-term debt at September 30 is as follows:
<TABLE>
<CAPTION>
2002 2001
---------- ----------
<S> <C> <C>
Private placement, interest rates ranging
from 7.8% to 8.0%, due 2003 to 2010 $ 175.0 $ 175.0
Revolving credit facility -- 50.0
---------- ----------
175.0 225.0
Less current portion 15.0 --
---------- ----------
Total long-term debt $ 160.0 $ 225.0
========== ==========
</TABLE>
Energizer maintains total committed debt facilities of $625.0, of which $450.0
remained available as of September 30, 2002.
Under the terms of the facilities, the ratio of Energizer's total indebtedness
to its EBITDA cannot be greater than 3 to 1 and the ratio of its EBIT to total
interest expense must exceed 3 to 1.
Aggregate maturities on all long-term debt are as follows: $15.0 in 2003, $110.0
in 2005, $25.0 in 2007 and $25.0 in 2010.
15. Sale of Accounts Receivable
Energizer entered into an agreement to sell, on an ongoing basis, a pool of
domestic trade accounts receivable to a wholly owned bankruptcy-remote
subsidiary of Energizer. The subsidiary qualifies as a Special Purpose Entity
(SPE) for accounting purposes and is therefore not consolidated for financial
reporting purposes. The SPE's sole purpose is the acquisition of receivables
from Energizer and the sale of its interests in the receivables to a
multi-seller receivables securitization company. Energizer's investment in the
SPE is classified as Other Current Assets on the Consolidated Balance Sheet as
disclosed below.
The activity related to the SPE at September 30 is presented in the table below.
The net proceeds of the transaction were used to reduce various debt
instruments. The proceeds are reflected as operating cash flows in Energizer's
Consolidated Statement of Cash Flows.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2002 2001
- ------------------- -------- --------
<S> <C> <C>
Total outstanding accounts receivable sold to SPE $ 164.6 $ 184.1
Cash received by SPE from sale of receivables to a
third party -- 86.2
Subordinated retained interest 164.6 97.9
Energizer's investment in SPE 164.6 97.9
</TABLE>
Absent the sale treatment required for the SPE, Energizer's balance sheet would
reflect additional accounts receivable, notes payable and lower other current
assets as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 2002 2001
- ------------------- -------- --------
<S> <C> <C>
Additional accounts receivable $ 164.6 $ 184.1
Additional notes payable -- 86.2
Lower other current assets 164.6 97.9
</TABLE>
16. Preferred Stock
Energizer's Articles of Incorporation authorize Energizer to issue up to 10
million shares of $.01 par value of preferred stock. As of September 30, 2002,
there were no shares of preferred stock outstanding.
17. Shareholders Equity
On March 16, 2000, the Board of Directors declared a dividend of one share
purchase right (Right) for each outstanding share of ENR common stock. Each
Right entitles a shareholder of ENR stock to purchase an additional share of ENR
stock at an exercise price of $150, which price is subject to anti-dilution
adjustments. Rights, however, may only be exercised if a person or group has
acquired or commenced a public tender for 20% or more of the outstanding ENR
stock, unless the acquisition is pursuant to a tender or exchange offer for all
outstanding shares of ENR stock and a majority of the Board of Directors
determines that the price and terms of the offer are adequate and in the best
interests of shareholders (a Permitted Offer). At the time that 20% or more of
the outstanding ENR stock is actually acquired (other than in connection with a
Permitted Offer), the exercise price of each Right will be adjusted so that the
holder (other than the person or member of the group that made the acquisition)
may then purchase a share of ENR stock at one-third of its then-current market
price. If Energizer merges with any other person or group after the Rights
become exercisable, a holder of a Right may purchase, at the exercise price,
common stock of the surviving entity having a value equal to twice the exercise
price. If Energizer transfers 50% or more of its assets or earnings power to any
other person or group after the Rights become exercisable, a holder of a Right
may purchase, at the exercise price, common stock of the acquiring entity having
a value equal to twice the exercise price.
Energizer can redeem the Rights at a price of $.01 per Right at any time prior
to the time a person or group actually acquires 20% or more of the outstanding
ENR stock (other than in connection with a Permitted Offer). In addition,
following the acquisition by a person or group of at least 20%, but not more
than 50% of the outstanding ENR stock (other than in connection with a Permitted
Offer), Energizer may exchange each Right for one share of ENR stock.
Energizer's Board of Directors may amend the terms of the Rights at any time
prior to the time a person or group acquires 20% or more of the outstanding ENR
stock (other than in connection with a Permitted Offer) and may amend the terms
to lower the threshold for
ENR 2002 Annual Report PAGE 38
exercise of the Rights. If the threshold is reduced it cannot be lowered to a
percentage that is less than 10% or, if any shareholder holds 10% or more of the
outstanding ENR stock at that time, the reduced threshold must be greater than
the percentage held by that shareholder. The Rights will expire on April 1,
2010.
At September 30, 2002, there were 300 million shares of ENR stock authorized, of
which approximately 8.9 million shares were reserved for issuance under the 2000
Incentive Stock Plan.
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, which was completed in May 2002. At that time, the Board approved a new
share repurchase plan authorizing the repurchase of up to an additional 5
million shares of common stock, of which no shares have been repurchased as of
the date of this report. In addition, in August 2002, pursuant to a modified
Dutch Auction tender offer, and under a separate Board authorization, Energizer
acquired approximately 2.6 million shares of its common stock at a cost of
$77.0.
18. Financial Instruments and Risk Management
FOREIGN CURRENCY CONTRACTS Energizer enters into foreign exchange forward
contracts and, to a lesser extent, purchases options and enters into zero-cost
option collars to mitigate potential losses in earnings or cash flows on foreign
currency transactions. Energizer has not designated any financial instruments as
hedges for accounting purposes. Foreign currency exposures are primarily related
to anticipated intercompany purchase transactions and intercompany borrowings.
Other foreign currency transactions to which Energizer is exposed include
external purchase transactions and intercompany receivables, dividends and
service fees.
The table below summarizes, by instrument and by major currency, the contractual
amounts of Energizer's forward exchange contracts and purchased currency options
in U.S. dollar equivalents at year-end. These contractual amounts represent
transaction volume outstanding and do not represent the amount of Energizer's
exposure to credit or market loss. Foreign currency contracts are generally for
one year or less.
<TABLE>
<CAPTION>
2002 2001
---------- ----------
<S> <C> <C>
INSTRUMENT
Options $ 25.8 $ 16.0
Forwards 8.7 121.3
CURRENCY
Euro 25.8 27.5
Australian dollar 8.6 --
Swiss franc -- 105.7
Other currencies 0.1 4.1
</TABLE>
PREPAID SHARE OPTION TRANSACTION 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 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 year ended September 30, 2002 resulted in income of $2.6.
CONCENTRATION OF CREDIT RISK The counterparties to foreign currency contracts
consist of a number of major international financial institutions and are
generally institutions with which Energizer maintains lines of credit. Energizer
does not enter into foreign exchange contracts through brokers nor does it trade
foreign exchange contracts on any other exchange or over-the-counter markets.
Risk of currency positions and mark-to-market valuation of positions are
strictly monitored at all times.
Energizer continually monitors positions with, and credit ratings of,
counterparties both internally and by using outside rating agencies. Energizer
has implemented policies that limit the amount of agreements it enters into with
any one party. While nonperformance by these counterparties exposes Energizer to
potential credit losses, such losses are not anticipated due to the control
features mentioned.
Energizer sells to a large number of customers primarily in the retail trade,
including those in mass merchandising, drugstore, supermarket and other channels
of distribution throughout the world. Energizer performs ongoing evaluations of
its customers' financial condition and creditworthiness, but does not generally
require collateral. While the competitiveness of the retail industry presents an
inherent uncertainty, Energizer does not believe a significant risk of loss from
a concentration of credit risk exists with respect to accounts receivable.
FINANCIAL INSTRUMENTS Energizer's financial instruments include cash and cash
equivalents, short-term and long-term debt, foreign currency contracts, and
interest rate swap agreements. Due to the nature of cash and cash equivalents
and short-term borrowings, including notes payable, carrying amounts on the
balance sheet approximate fair value.
At September 30, 2002 and 2001, the fair market value of long-term debt was
$200.0 and $242.2, respectively, compared to its carrying value of $175.0 and
$225.0, respectively. The fair value of the long-term debt is estimated using
yields obtained from independent pricing sources for similar types of borrowing
arrangements.
The fair value of foreign currency contracts is the amount that Energizer would
receive or pay to terminate the contracts, considering first, quoted market
prices of comparable agreements, or in the absence of quoted market prices, such
factors as interest rates, currency exchange rates and
ENR 2002 Annual Report PAGE 39
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
remaining maturities. Based on these considerations, Energizer would receive a
total net payment of zero and $6.7 for outstanding foreign currency contracts at
September 30, 2002 and 2001, respectively. However, these payments are unlikely
due to the fact that Energizer enters into foreign currency contracts to hedge
identifiable foreign currency exposures, and as such would generally not
terminate such contracts.
19. Environmental and Legal Matters
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS The operations of Energizer,
like those of other companies engaged in the battery business, are subject to
various federal, state, foreign and local laws and regulations intended to
protect the public health and the environment. These regulations primarily
relate to worker safety, air and water quality, underground fuel storage tanks
and waste handling and disposal.
Energizer has received notices from the U.S. Environmental Protection Agency,
state agencies and/or private parties seeking contribution, that it has been
identified as a "potentially responsible party" (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act, and may be required to
share in the cost of cleanup with respect to eight federal "Superfund" sites. It
may also be required to share in the cost of cleanup with respect to a
state-designated site. Liability under the applicable federal and state statutes
which mandate cleanup is strict, meaning that liability may attach regardless of
lack of fault, and joint and several, meaning that a liable party may be
responsible for all of the costs incurred in investigating and cleaning up
contamination at a site. However, liability in such matters is typically shared
by all of the financially viable responsible parties, through negotiated
agreements. Negotiations with the U.S. Environmental Protection Agency, the
state agency that is involved on the state-designated site, and other PRPs are
at various stages with respect to the sites. Negotiations involve determinations
of the actual responsibility of Energizer and the other PRPs at the site,
appropriate investigatory and/or remedial actions, and allocation of the costs
of such activities among the PRPs and other site users.
The amount of Energizer's ultimate liability in connection with those sites may
depend on many factors, including the volume and toxicity of material
contributed to the site, the number of other PRPs and their financial viability,
and the remediation methods and technology to be used.
In addition, Energizer undertook certain programs to reduce or eliminate the
environmental contamination at the rechargeable battery facility in Gainesville,
Florida, which was divested in November 1999. The buyer assumed responsibility
for those programs at the time of the divestiture. In 2001, the buyer, as well
as its operating subsidiary which owns and operates the Gainesville facility,
filed petitions in bankruptcy. In the event that the buyer and its affiliates
become unable to continue the programs to reduce or eliminate contamination,
Energizer could be required to bear financial responsibility for such programs
as well as for other known and unknown environmental conditions at the site.
Under the terms of the Reorganization Agreement between Energizer and Ralston
Purina Company, however, which has been assumed by an affiliate of The Nestle
Corporation, Ralston's successor is obligated to indemnify Energizer for 50% of
any such liabilities in excess of $3.
Many European countries, as well as the European Union, have been very active in
adopting and enforcing environmental regulations. In many developing countries
in which Energizer operates, there has not been significant governmental
regulation relating to the environment, occupational safety, employment
practices or other business matters routinely regulated in the United States. As
such economies develop, it is possible that new regulations may increase the
risk and expense of doing business in such countries.
Accruals for environmental remediation are recorded when it is probable that a
liability has been incurred and the amount of the liability can be reasonably
estimated, based on current law and existing technologies. These accruals are
adjusted periodically as assessments take place and remediation efforts
progress, or as additional technical or legal information becomes available.
It is difficult to quantify with certainty the potential financial impact of
actions regarding expenditures for environmental matters, particularly
remediation, and future capital expenditures for environmental control
equipment. Nevertheless, based upon the information currently available,
Energizer believes that its ultimate liability arising from such environmental
matters, taking into account established accruals of $7.0 for estimated
liabilities at September 30, 2002, should not be material to its financial
position. Such liability could, however, be material to results of operations or
cash flows for a particular quarter or year.
LEGAL PROCEEDINGS Energizer previously disclosed that Zinc Products Company, a
division of Alltrista Corp., a supplier of zinc cans used in the manufacture of
batteries, filed suit against Energizer, claiming breach of contract when
Energizer closed its Fremont, Ohio plant. In January of 2001, the suit was
dismissed upon a settlement payment, in an immaterial amount, by Energizer.
In October 2001, Energizer entered into separate settlement agreements with
Strategic Electronics and Duracell related to outstanding contract claims
associated with Duracell's and Energizer's on-label battery testers. Under the
terms of the agreements, mutual releases of all outstanding claims were given,
and Energizer was licensed to utilize any applicable patents related to its
on-label battery tester.
Energizer and its subsidiaries are parties to a number of legal proceedings in
various jurisdictions arising out of the operations of the Energizer business.
Many of these legal matters are in preliminary stages and
ENR 2002 Annual Report PAGE 40
involve complex issues of law and fact, and may proceed for protracted periods
of time. The amount of liability, if any, from these proceedings cannot be
determined with certainty. However, based upon present information, Energizer
believes that its ultimate liability, if any, arising from pending legal
proceedings, asserted legal claims and known potential legal claims which are
likely to be asserted, should not be material to Energizer's financial position,
taking into account established accruals for estimated liabilities. These
liabilities, however, could be material to results of operations or cash flows
for a particular quarter or year.
20. Other Commitments and Contingencies
Future minimum rental commitments under noncancellable operating leases in
effect as of September 30, 2002 were $9.8 in 2003, $8.4 in 2004, $7.5 in 2005,
$7.5 in 2006, $7.3 in 2007 and $30.4 thereafter. These leases are primarily for
office facilities.
Total rental expense for all operating leases was $17.3, $17.9 and $17.5 in
2002, 2001 and 2000, respectively.
21. Supplemental Financial Statement Information
<TABLE>
<CAPTION>
2002 2001
---------- ----------
<S> <C> <C>
SUPPLEMENTAL BALANCE SHEET INFORMATION:
Inventories
Raw materials and supplies $ 44.5 $ 47.0
Work in process 98.6 91.4
Finished products 215.9 222.9
---------- ----------
Total inventories $ 359.0 $ 361.3
========== ==========
Other current assets
Investment in SPE (see Note 15) $ 164.6 $ 97.9
Miscellaneous receivables 21.3 25.3
Deferred income tax benefits 56.6 46.3
Prepaid expenses 63.5 39.8
Other -- 0.6
---------- ----------
Total other current assets $ 306.0 $ 209.9
========== ==========
Property at cost
Land $ 10.2 $ 10.1
Buildings 149.5 147.6
Machinery and equipment 855.8 834.5
Construction in progress 24.8 37.8
---------- ----------
Total gross property 1,040.3 1,030.0
Accumulated depreciation 584.6 553.9
---------- ----------
Total net property at cost $ 455.7 $ 476.1
========== ==========
Other assets
Goodwill (net of accumulated amortization:
$25.4 in 2002, $25.9 in 2001) $ 37.4 $ 38.1
Other intangible assets (net of accumulated
amortization: $364.2 in 2002, $364.7 in 2001) 73.9 72.7
Pension asset 117.9 106.2
Deferred charges and other assets 15.3 21.2
---------- ----------
Total other assets $ 244.5 $ 238.2
========== ==========
Other current liabilities
Accrued advertising, promotion and allowances $ 141.4 $ 143.2
Accrued salaries, vacations and incentive compensation 69.4 47.2
Other 94.8 85.3
---------- ----------
Total other current liabilities $ 305.6 $ 275.7
========== ==========
Other noncurrent liabilities
Postretirement benefit liability $ 90.3 $ 91.7
Other noncurrent liabilities 98.4 77.8
---------- ----------
Total other noncurrent liabilities $ 188.7 $ 169.5
========== ==========
</TABLE>
ENR 2002 Annual Report PAGE 41
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance at beginning of year $ 11.8 $ 12.5 $ 19.3
Provision charged to expense 16.6 2.8 5.1
Write-offs, less recoveries (21.2) (3.9) (5.9)
Transfer to SPE (see Note 15) (0.3) 0.4 (6.0)
---------- ---------- ----------
Balance at end of year $ 6.9 $ 11.8 $ 12.5
========== ========== ==========
SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION:
Interest paid $ 19.9 $ 36.1 $ 19.5
Income taxes paid 95.7 83.1 86.5
</TABLE>
22. Segment Information
Energizer manufactures and markets dry cell batteries including alkaline, carbon
zinc, miniature and specialty batteries, and flashlights and other lighting
products throughout the world. Operations are managed via four major geographic
areas - North America (the United States, Canada and Caribbean), Asia Pacific,
Europe, and South and Central America (including Mexico). 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 Energizer's current management objectives and structure, Energizer
believes the exclusion of intersegment profit in segment results is a more
appropriate view of its operating segments.
Beginning in fiscal 2002, Energizer reported 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 will no longer be
reported in the selling region. As a result, segments with manufacturing
capacity that are net exporters to other segments will show lower segment profit
than in the past. Segments that are net importers of Energizer manufactured
product will show higher segment profit than in the past. Prior periods have
been restated for comparability.
Wal-Mart Stores, Inc. and its subsidiaries accounted for 16.3%, 16.6% and 15.3%
of total net sales in 2002, 2001 and 2000, respectively, primarily in North
America.
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES
North America $ 1,035.0 $ 970.3 $ 1,123.0
Asia Pacific 321.0 322.9 388.2
Europe 281.7 265.7 285.1
South and Central America 102.0 135.3 131.4
---------- ---------- ----------
Total net sales $ 1,739.7 $ 1,694.2 $ 1,927.7
========== ========== ==========
OPERATING PROFIT BEFORE RESTRUCTURING CHARGES,
AMORTIZATION, INTEREST AND UNUSUAL ITEMS
North America $ 286.2 $ 202.4 $ 309.2
Asia Pacific 78.5 66.6 95.2
Europe 21.3 6.6 10.1
South and Central America 9.7 13.3 18.9
---------- ---------- ----------
Total segment profitability 395.7 288.9 433.4
General corporate and other expenses (55.0) (26.5) (35.1)
Research and development expense (37.1) (46.4) (49.9)
---------- ---------- ----------
Operating profit before restructuring charges,
amortization, interest and unusual items 303.6 216.0 348.4
Provisions for restructuring and other related costs (10.3) (29.8) --
Gain on sale of property 6.3 -- --
Provision for goodwill impairment -- (119.0) --
Intellectual property rights income -- 20.0 --
Costs related to spin-off -- -- (5.5)
Loss on disposition of Spanish affiliate -- -- (15.7)
Amortization -- (21.2) (24.1)
Interest and other financial items (21.2) (34.5) (23.9)
---------- ---------- ----------
Total earnings from continuing operations before income taxes $ 278.4 $ 31.5 $ 279.2
========== ========== ==========
</TABLE>
ENR 2002 Annual Report PAGE 42
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
DEPRECIATION
North America $ 39.3 $ 38.1 $ 34.8
Asia Pacific 10.6 11.5 12.4
Europe 6.1 6.4 7.7
South and Central America 1.4 2.6 3.0
---------- ---------- ----------
Total depreciation expense $ 57.4 $ 58.6 $ 57.9
========== ========== ==========
ASSETS AT YEAR END
North America $ 951.6 $ 851.7 $ 956.5
Asia Pacific 208.1 195.7 245.7
Europe 263.5 259.2 244.7
South and Central America 53.6 80.2 96.2
---------- ---------- ----------
Total segment assets 1,476.8 1,386.8 1,543.1
Goodwill and other intangible assets 111.3 110.8 250.4
---------- ---------- ----------
Total assets $ 1,588.1 $ 1,497.6 $ 1,793.5
========== ========== ==========
CAPITAL EXPENDITURES
North America $ 30.1 $ 69.0 $ 56.0
Asia Pacific 7.0 4.6 8.4
Europe 2.5 2.6 6.0
South and Central America 1.1 1.7 2.4
---------- ---------- ----------
Total capital expenditures $ 40.7 $ 77.9 $ 72.8
========== ========== ==========
GEOGRAPHIC SEGMENT INFORMATION ON A LEGAL ENTITY BASIS:
NET SALES TO CUSTOMERS
United States $ 963.8 $ 903.4 $ 1,053.5
International 775.9 790.8 874.2
---------- ---------- ----------
Total net sales $ 1,739.7 $ 1,694.2 $ 1,927.7
========== ========== ==========
LONG-LIVED ASSETS
United States $ 518.9 $ 527.1 $ 517.9
International 181.3 187.2 345.3
---------- ---------- ----------
Total long-lived assets $ 700.2 $ 714.3 $ 863.2
========== ========== ==========
</TABLE>
Supplemental product information is presented below for net sales:
<TABLE>
<CAPTION>
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES
Alkaline batteries $ 1,189.0 $ 1,124.5 $ 1,282.3
Carbon zinc batteries 243.2 263.4 324.3
Lighting products 109.8 114.0 130.4
Miniature batteries 69.3 67.2 64.9
Other 128.4 125.1 125.8
---------- ---------- ----------
Total net sales $ 1,739.7 $ 1,694.2 $ 1,927.7
========== ========== ==========
</TABLE>
ENR 2002 Annual Report PAGE 43
Energizer Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)
23. Quarterly Financial Information - (Unaudited)
The results of any single quarter are not necessarily indicative of Energizer's
results for the full year. Net earnings of Energizer are significantly impacted
in the first quarter by the additional sales volume associated with the December
holiday season.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FISCAL 2002
Net sales $ 567.7 $ 339.7 $ 389.9 $ 442.4
Gross profit 262.7 149.9 169.4 193.9
Net earnings(b) 70.4 20.0 39.8 56.2
Basic earnings per share $ 0.77 $ 0.22 $ 0.44 $ 0.62
Diluted earnings per share $ 0.76 $ 0.21 $ 0.43 $ 0.61
FISCAL 2001
Net sales(a) $ 559.3 $ 355.0 $ 347.2 $ 432.7
Gross profit 247.7 150.4 131.4 165.6
Net earnings/(loss)(b) 54.2 5.6 15.7 (114.5)
Basic and diluted earnings/(loss) per share $ 0.57 $ 0.06 $ 0.17 $ (1.25)
</TABLE>
(a) Certain reclassifications have been made to comply with EITF 00-10, 00-14
and 00-25. See Note 2 for further discussion.
<TABLE>
<CAPTION>
FIRST SECOND THIRD
---------- ---------- ----------
<S> <C> <C> <C>
FISCAL 2001
Net sales as disclosed in 10Q $ 558.7 $ 351.9 $ 346.6
Reclassifications, net 0.6 3.1 0.6
---------- ---------- ----------
Reclassified net sales $ 559.3 $ 355.0 $ 347.2
========== ========== ==========
Gross profit as disclosed in 10Q $ 266.7 $ 162.3 $ 145.0
Reclassifications, net (19.0) (11.9) (13.6)
---------- ---------- ----------
Reclassified gross profit $ 247.7 $ 150.4 $ 131.4
========== ========== ==========
</TABLE>
(b) Net earnings includes the following items:
<TABLE>
<CAPTION>
2002 2001
-------- --------
<S> <C> <C>
First quarter
Provisions for restructuring and related costs (2.9) --
Amortization -- (3.8)
Second quarter
Accounts receivable write-down (6.1) --
Provisions for restructuring (2.9) --
Amortization -- (3.8)
Third quarter
Intellectual property rights income -- 12.3
Amortization -- (3.8)
Fourth quarter
Provisions for restructuring (2.0) (19.4)
Accounts receivable write-down (3.2) --
Gain on sale of property 5.0 --
Tax benefits recognized in fiscal 2002 related to prior years' losses 6.7 --
Amortization -- (3.7)
Provision for goodwill impairment -- (119.0)
</TABLE>
ENR 2002 Annual Report PAGE 44
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>10
<FILENAME>doc9.txt
<TEXT>
<TABLE>
<CAPTION>
ENERGIZER SUBSIDIARIES 11/1/02
--------------------------------------
<C> <S> <C> <C>
Jurisdictions of Percentage of Control
---------------- ----------------------
Subsidiary Name . . . . . . . . . . . . . Incorporation
----------------------------------------- ----------------
Energizer Argentina S.A.. . . . . . . . . Argentina 100%
----------------------------------------- ---------------- ----------------------
Energizer Australia Pty. Ltd. . . . . . . Australia 100%
----------------------------------------- ---------------- ----------------------
Energizer Austria Ges.m.b.H.. . . . . . . Austria 100%
----------------------------------------- ---------------- ----------------------
Energizer Sales Ltd.. . . . . . . . . . . Barbados 100%
----------------------------------------- ---------------- ----------------------
Energizer Belgium . . . . . . . . . . . . Belgium 100%
----------------------------------------- ---------------- ----------------------
Energizer Insurance Company Ltd.. . . . . Bermuda 100%
----------------------------------------- ---------------- ----------------------
* Energizer do Brasil Ltda. . . . . . . . . Brazil 100%
----------------------------------------- ---------------- ----------------------
Energizer Canada Inc. . . . . . . . . . . Canada 100%
----------------------------------------- ---------------- ----------------------
Eveready de Chile S.A.. . . . . . . . . . Chile 100%
----------------------------------------- ---------------- ----------------------
Energizer (China) Co., Ltd. . . . . . . . China 100%
----------------------------------------- ---------------- ----------------------
Eveready de Colombia, S.A.. . . . . . . . Colombia 100%
----------------------------------------- ---------------- ----------------------
+ ECOBAT s.r.o. . . . . . . . . . . . . . . Czech Republic 33.3%
----------------------------------------- ---------------- ----------------------
Energizer Czech spol.sr.o.. . . . . . . . Czech Republic 100%
----------------------------------------- ---------------- ----------------------
EBC Batteries, Inc. . . . . . . . . . . . Delaware 100%
----------------------------------------- ---------------- ----------------------
Energizer Asia Pacific, Inc.. . . . . . . Delaware 100%
----------------------------------------- ---------------- ----------------------
** Energizer International, Inc. . . . . . . Delaware 100%
----------------------------------------- ---------------- ----------------------
Energizer Japan, Inc. . . . . . . . . . . Delaware 100%
----------------------------------------- ---------------- ----------------------
Energizer Middle East and Africa Limited. Delaware 100%
----------------------------------------- ---------------- ----------------------
Energizer (South Africa) Ltd. . . . . . . Delaware 100%
----------------------------------------- ---------------- ----------------------
Eveready Battery Company, Inc.. . . . . . Delaware 100%
----------------------------------------- ---------------- ----------------------
** MKTE, Inc.. . . . . . . . . . . . . . . . Delaware 100%
----------------------------------------- ---------------- ----------------------
Energizer Receivables Funding Corporation Delaware 100%
----------------------------------------- ---------------- ----------------------
Eveready Ecuador C.A. . . . . . . . . . . Ecuador 100%
----------------------------------------- ---------------- ----------------------
Energizer Egypt S.A.E.. . . . . . . . . . Egypt 63.42%
----------------------------------------- ---------------- ----------------------
Energizer France. . . . . . . . . . . . . France 100%
----------------------------------------- ---------------- ----------------------
+ Fibat S.A.. . . . . . . . . . . . . . . . France 20%
----------------------------------------- ---------------- ----------------------
Energizer Deutschland G.m.b.H.. . . . . . Germany 100%
----------------------------------------- ---------------- ----------------------
* Eveready Ghana Limited. . . . . . . . . . Ghana 66.6%
----------------------------------------- ---------------- ----------------------
Energizer Hellas A.E. . . . . . . . . . . Greece 100%
----------------------------------------- ---------------- ----------------------
Energizer Hong Kong Limited . . . . . . . Hong Kong 100%
----------------------------------------- ---------------- ----------------------
Eveready Hong Kong Company. . . . . . . . Hong Kong 100% Partnership
----------------------------------------- ---------------- ----------------------
Sonca Products Limited. . . . . . . . . . Hong Kong 100%
----------------------------------------- ---------------- ----------------------
Energizer Hungary Trading Ltd.. . . . . . Hungary 100%
----------------------------------------- ---------------- ----------------------
EBC (India) Company Private Limited . . . India 100%
----------------------------------------- ---------------- ----------------------
Energizer India Private Limited . . . . . India 100%
----------------------------------------- ---------------- ----------------------
* Eveready Energizer Miniatures Limited . . India 49% Joint Venture
----------------------------------------- ---------------- ----------------------
PT Energizer Indonesia. . . . . . . . . . Indonesia 100%
----------------------------------------- ---------------- ----------------------
PT Energizer Trading Indonesia. . . . . . Indonesia 100%
----------------------------------------- ---------------- ----------------------
Energizer Ireland Limited . . . . . . . . Ireland 100%
----------------------------------------- ---------------- ----------------------
Energizer Italia S.p.A. . . . . . . . . . Italy 100%
----------------------------------------- ---------------- ----------------------
Eveready Batteries Kenya Ltd. . . . . . . Kenya 14%
----------------------------------------- ---------------- ----------------------
Energizer Korea Ltd.. . . . . . . . . . . Korea 100%
----------------------------------------- ---------------- ----------------------
Energizer Malaysia SDN.BHD. . . . . . . . Malaysia 80%
----------------------------------------- ---------------- ----------------------
Eveready de Mexico S.A. de C.V. . . . . . Mexico 100%
----------------------------------------- ---------------- ----------------------
Energizer Holdings, Inc.. . . . . . . . . Missouri 100%
----------------------------------------- ---------------- ----------------------
Energizer NZ Limited. . . . . . . . . . . New Zealand 100%
----------------------------------------- ---------------- ----------------------
Eveready NZ Limited . . . . . . . . . . . New Zealand 100%
----------------------------------------- ---------------- ----------------------
Energizer Philippines, Inc. . . . . . . . Philippines 100%
----------------------------------------- ---------------- ----------------------
Energizer Polska Sp. zo.o . . . . . . . . Poland 100%
----------------------------------------- ---------------- ----------------------
+ REBA Organizacja Odzysku S.A. . . . . . . Poland 25%
----------------------------------------- ---------------- ----------------------
+ ECOPILHAS LDA.. . . . . . . . . . . . . . Portugal 20%
----------------------------------------- ---------------- ----------------------
Energizer Puerto Rico, Inc. . . . . . . . Puerto Rico 100%
----------------------------------------- ---------------- ----------------------
Energizer LLC . . . . . . . . . . . . . . Russia 100%
----------------------------------------- ---------------- ----------------------
Energizer Singapore Pte. Ltd. . . . . . . Singapore 100%
----------------------------------------- ---------------- ----------------------
Energizer Slovakia, Spol.Sr.O.. . . . . . Slovak Republic 100%
----------------------------------------- ---------------- ----------------------
Energizer Lanka Limited . . . . . . . . . Sri Lanka 60.67%
----------------------------------------- ---------------- ----------------------
Energizer SA. . . . . . . . . . . . . . . Switzerland 100%
----------------------------------------- ---------------- ----------------------
Energizer (Thailand) Limited. . . . . . . Thailand 100%
----------------------------------------- ---------------- ----------------------
Berec Overseas Investments Limited. . . . UK 100%
----------------------------------------- ---------------- ----------------------
Energizer Financial Service Centre Ltd. . UK 100%
----------------------------------------- ---------------- ----------------------
Energizer Holdings UK Company . . . . . . UK 100%
----------------------------------------- ---------------- ----------------------
Ever Ready Limited. . . . . . . . . . . . UK 100%
----------------------------------------- ---------------- ----------------------
Energizer Limited . . . . . . . . . . . . UK 100%
----------------------------------------- ---------------- ----------------------
Energizer Trust Limited . . . . . . . . . UK 100%
----------------------------------------- ---------------- ----------------------
* WER (MVL) 1998 Limited. . . . . . . . . . UK 100%
-- ----------------------------------------- ---------------- ----------------------
EBC Uruguay, S. A.. . . . . . . . . . . . Uruguay 100%
----------------------------------------- ---------------- ----------------------
Eveready de Venezuela, C.A. . . . . . . . Venezuela 100%
----------------------------------------- ---------------- ----------------------
</TABLE>
* In liquidation
** "Delaware Holding Company"
+ Non-profit corporation
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>11
<FILENAME>doc12.txt
<TEXT>
[PRICEWATERHOUSECOOPERS LOGO]
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 333-33690, 333-33676 and 333-35116) of Energizer
Holdings, Inc. of our report dated October 28, 2002 relating to the financial
statements, which appears in the Annual Report to Shareholders 2002, which is
incorporated in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
St. Louis, Missouri
December 4, 2002
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>12
<FILENAME>doc10.txt
<TEXT>
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Energizer Holdings, Inc. (the "Company")
on Form 10-K for the fiscal year ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, J.
Patrick Mulcahy, Chief Executive Officer of the Company, certify pursuant to 18
U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002,
that, to my best knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ J. Patrick Mulcahy
- -------------------------
J. Patrick Mulcahy
Chief Executive Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>13
<FILENAME>doc11.txt
<TEXT>
21
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Energizer Holdings, Inc. (the "Company")
on Form 10-K for the fiscal year ending September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel
J. Sescleifer, Executive Vice President and Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of
the Sarbanes-Oxley Act of 2002, that, to my best knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Daniel J. Sescleifer
- ---------------------------
Daniel J. Sescleifer
Executive Vice President and Chief Financial Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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