SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
Commission File No. 001-15401
ENERGIZER HOLDINGS, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1863181
------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
CHECKERBOARD SQUARE, ST. LOUIS MISSOURI 63164
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 982-2000
------------------------------------------------------------
(Registrant's telephone number, including area code)
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months, and (2)
has been subject to such filing requirements for the past 90 days.
YES: X NO: _____
-----
Number of shares of Energizer Holdings, Inc. common stock, $.01 par value,
outstanding as of the close of business on August 4, 2000.
95,552,711
------------------
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED STATEMENT OF EARNINGS
(CONDENSED)
(DOLLARS IN MILLIONS--UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $402.8 $399.2 $1,436.3 $1,387.3
------- ------- --------- ---------
Costs and Expenses
Cost of products sold 205.9 216.1 720.7 742.9
Selling, general and administrative 91.0 90.5 285.8 291.6
Advertising and promotion 40.9 34.5 142.4 126.8
Research and development 11.5 12.3 37.6 35.9
Costs related to spin-off - - 5.5 -
Loss on disposition of Spanish affiliate - - 15.7 -
Provisions for restructuring - 8.9 - 14.9
Interest expense 10.7 2.2 16.2 5.7
------- ------- --------- ---------
360.0 364.5 1,223.9 1,217.8
------- ------- --------- ---------
Earnings from Continuing Operations before Income Taxes 42.8 34.7 212.4 169.5
Income Taxes (19.6) (13.0) (68.8) (71.0)
------- ------- --------- ---------
Earnings from Continuing Operations 23.2 21.7 143.6 98.5
Net Loss from Discontinued Operations - - - (5.6)
Net Gain (Loss) on Disposition of Discontinued Operations - - 1.2 (74.2)
------- ------- --------- ---------
Net Earnings $ 23.2 $ 21.7 $ 144.8 $ 18.7
======= ======= ========= =========
Basic and Diluted Earnings Per Share $ 0.24
=======
<FN>
See accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED BALANCE SHEET
(CONDENSED)
(DOLLARS IN MILLIONS - UNAUDITED)
<S> <C> <C>
JUNE 30, SEPTEMBER 30,
2000 1999
--------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 21.8 $ 27.8
Trade receivables, less allowance for doubtful
accounts of $15.5 and $19.3, respectively 180.3 441.9
Inventories
Raw materials and supplies 64.4 74.0
Work in process 103.6 80.5
Finished products 292.5 228.5
--------- --------
Total Inventory 460.5 383.0
Other current assets 239.4 121.3
--------- --------
Total Current Assets 902.0 974.0
--------- --------
Investments and Other Assets 388.9 319.7
Net Investment in Discontinued Operations - 67.2
Property at Cost 1,010.9 1,010.1
Accumulated depreciation 541.7 537.3
--------- --------
469.2 472.8
--------- --------
Total $1,760.1 $1,833.7
========= ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current Liabilities
Current maturities of long-term debt $ - $ 0.3
Notes payable 147.2 118.5
Accounts payable 115.9 128.6
Other current liabilities 232.4 248.5
--------- --------
Total Current Liabilities 495.5 495.9
Long-Term Debt 407.0 1.9
Other Liabilities 149.9 23.0
Shareholders Equity
Common Stock 1.0 -
Additional Paid in Capital 783.9 -
Retained Earnings 23.2 -
Accumulated Other Comprehensive Income (100.4) -
Net Investment in Energizer - 1,312.9
--------- --------
Total Shareholders Equity 707.7 1,312.9
--------- --------
Total $1,760.1 $1,833.7
========= ========
<FN>
See accompanying Notes to Condensed Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
COMBINED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(CONDENSED)
(DOLLARS IN MILLIONS - UNAUDITED)
<S> <C> <C>
NINE MONTHS ENDED
JUNE 30,
2000 1999
-------- --------
CASH FLOW FROM OPERATIONS
Net earnings $ 144.8 $ 18.7
Net (income) loss from discontinued operations (1.2) 79.8
Loss on disposition of Spanish affiliate 15.7 -
Sale of accounts receivable 84.3 -
Non-cash items included in income 60.1 120.7
Changes in assets and liabilities used in operations (76.3) 6.0
Other, net (4.3) (6.7)
-------- --------
Cash flow from continuing operations 223.1 218.5
Cash flow from discontinued operations 54.7 7.0
-------- --------
Net cash flow from operations 277.8 225.5
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Property additions (50.1) (51.2)
Proceeds from sale of OEM business 20.0 -
Proceeds from sale of Spanish affiliate 1.4 -
Proceeds from sale of property 1.8 5.2
Other, net (5.4) (0.8)
-------- --------
Cash used by investing activities - continuing operations (32.3) (46.8)
Cash used by investing activities - discontinued operations (0.7) (2.5)
-------- --------
Net cash used by investing activities (33.0) (49.3)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Net cash proceeds from issuance of long-term debt 407.0 1.0
Principal payments on long-term debt (including current
maturities) (412.7) (13.5)
Net (decrease)increase in notes payable (34.2) 8.4
Net transactions with Ralston (210.7) (189.2)
-------- --------
Net cash used by financing activities (250.6) (193.3)
-------- --------
Effect of Exchange Rate Changes on Cash (0.2) 1.4
-------- --------
Net Decrease in Cash and Cash Equivalents (6.0) (15.7)
Cash and Cash Equivalents, Beginning of Period 27.8 49.1
-------- --------
Cash and Cash Equivalents, End of Period $ 21.8 $ 33.4
======== ========
Non-Cash Transactions:
Debt assigned by Ralston $ 478.0 $ -
======== ========
<FN>
See accompanying Notes to Condensed Financial Statements.
</TABLE>
ENERGIZER HOLDINGS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
(DOLLARS IN MILLIONS - UNAUDITED)
NOTE 1 - The accompanying unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for any quarter are not necessarily indicative of the results
for any other quarter or for the full year. These statements should be read in
conjunction with the financial statements and notes thereto for Energizer for
the year ended September 30, 1999.
NOTE 2 - On April 1, 2000, Ralston Purina Company (Ralston) distributed the
common stock of its wholly owned subsidiary, Energizer Holdings, Inc.
(Energizer), to the shareholders of Ralston's common stock through a tax-free
spin-off. Following the spin-off, Energizer has conducted its business as a
separate public company.
NOTE 3 - The current nine-month results include pre-tax spin costs of $5.5
related to one-time costs incurred by Energizer as a result of the spin-off.
These costs include legal fees, charges related to vesting of certain
compensation benefits, expenses incurred to separate certain employee benefit
plans, etc. Total spin related costs were $3.3 on an after-tax basis.
NOTE 4 - The current nine-month results include a non-cash loss of $15.7 related
to the sale of Energizer's Spanish affiliate. Capital loss tax benefits
recognized by Ralston related to the Spanish sale were $24.4 and are included in
the historical basis financial statements.
NOTE 5 - During the quarter ended June 30, 1999, Energizer recorded net
after-tax and pre-tax provisions for restructuring of $8.5 and $11.0,
respectively. During the nine-month period ended June 30, 1999, Energizer
recorded net after-tax and pre-tax provisions for restructuring of $14.6 and
$17.0, respectively. Of these pre-tax charges, $2.1 related to inventory
write-downs and is classified as cost of products sold in the combined statement
of earnings. The remaining charges were primarily termination benefits
associated with a 1997 alkaline and carbon zinc production restructuring plan
for Europe. Capital loss tax benefits of $3.3 associated with prior
restructuring activities are included in the prior quarter and nine-month
results.
During the nine month period ended June 30, 2000, approximately 180 employees
were terminated in connection with restructuring accruals established in prior
years. Except for disposition of certain assets held for disposal,
substantially all actions associated with the 1997 and 1999 restructuring plans
have been completed as of June 30, 2000. Activities impacting the restructuring
reserve during the nine month period ended June 30, 2000, are presented in the
following table:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Beginning Provision/ Ending
Balance Reversals Activity Balance
-------- ---------- ---------- --------
1995 Plan
Other Cash Costs $ .8 $ - $ (0.8) $ -
Total .8 - (0.8) -
-------- ---------- ---------- --------
1996 PLAN
Other Cash Costs .8 - - .8
Total .8 - - .8
-------- ---------- ---------- --------
1997 PLAN
Termination Benefits 4.1 - (4.1) -
Other Cash Costs 1.3 - - 1.3
Total 5.4 - (4.1) 1.3
-------- ---------- ---------- --------
1998 PLAN
Termination Benefits 1.6 - (1.6) -
Other Cash Costs 2.0 - (0.2) 1.8
Total 3.6 - (1.8) 1.8
-------- ---------- ---------- --------
1999 PLAN
Termination Benefits .7 - (0.7) -
Total .7 - (0.7) -
-------- ---------- ---------- --------
Grand Total $ 11.3 $ - $ (7.4) $ 3.9
======== ========== ========== ========
</TABLE>
NOTE 6 - Energizer's operations are managed via four major geographic areas -
North America (which includes the U.S. and Canada), Asia Pacific, Europe, and
South and Central America (including Mexico). This structure is the basis for
the Company's reportable operating segment information disclosed below. Segment
performance is evaluated based on operating profit, exclusive of general
corporate expenses, research and development expenses, restructuring charges and
amortization of goodwill and intangibles. Financial items, such as interest
income and expense, are managed on a global basis at the corporate level.
Intersegment sales are generally valued at market-based prices and represent the
difference between total sales and external sales as presented in the table
below. Segment profitability includes profit on these intersegment sales.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JUNE 30,
<S> <C> <C> <C> <C>
2000 1999
------ ------
TOTAL EXTERNAL TOTAL EXTERNAL
Net Sales SALES SALES SALES SALES
-------- ----- ------- ------
North America $258.8 $229.3 $243.9 $215.9
Asia Pacific 112.9 91.4 102.0 92.5
Europe 58.2 54.4 63.7 62.2
South and Central America 31.3 27.7 31.1 28.6
----- ------
Total Net Sales $402.8 $399.2
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30,
<S> <C> <C> <C> <C>
2000 1999
------ ------
TOTAL EXTERNAL TOTAL EXTERNAL
Net Sales SALES SALES SALES SALES
-------- ----- ------- ------
North America $ 890.5 $ 812.5 $820.7 $742.8
Asia Pacific 359.5 306.3 324.3 293.7
Europe 224.2 219.5 252.0 249.4
South and Central America 110.6 98.0 114.6 101.4
------- -------
Total Net Sales $1,436.3 $1,387.3
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JUNE 30,
2000 1999
---- ----
OPERATING PROFIT BEFORE UNUSUAL ITEMS AND
AMORTIZATION
<S> <C> <C>
North America $ 59.1 $ 51.3
Asia Pacific 24.9 21.8
Europe (3.2) (0.6)
South and Central America (0.4) 1.6
------- -------
TOTAL SEGMENT PROFITABILITY 80.4 74.1
General Corporate Expenses (8.5) (10.6)
Research and Development Expense (11.5) (12.3)
------- -------
Operating Profit before Unusual Items and
Amortization 60.4 51.2
Restructuring Charges - (11.0)
Amortization (5.8) (6.1)
Interest and Other Financial Items (11.8) 0.6
------- -------
Total Earnings Before Income Taxes $ 42.8 $ 34.7
======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30,
2000 1999
---- ----
OPERATING PROFIT BEFORE UNUSUAL ITEMS AND
AMORTIZATION
<S> <C> <C>
North America $229.4 $198.8
Asia Pacific 85.6 69.8
Europe 5.7 (0.3)
South and Central America 9.0 9.8
------- -------
TOTAL SEGMENT PROFITABILITY 329.7 278.1
General Corporate Expenses (26.6) (33.0)
Research and Development Expense (37.6) (35.9)
------- -------
Operating Profit before Unusual Items and
Amortization 265.5 209.2
Costs related to spin-off (5.5) -
Loss on disposition of Spanish affiliate (15.7) -
Restructuring Charges - (17.0)
Amortization (18.1) (18.6)
Interest and Other Financial Items (13.8) (4.1)
------- -------
Total Earnings from Continuing Operations
Before Income Taxes $212.4 $169.5
======= =======
</TABLE>
NOTE 7 - In 1999, Energizer adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income". Accumulated other comprehensive
income is included in Net Investment in Energizer in the September 30, 1999
combined balance sheet. The components of total comprehensive income for the
quarter ended June 30, 2000 and 1999 are shown in the following table:
<TABLE>
<CAPTION>
Quarter Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Net earnings $ 23.2 $21.7
Other comprehensive income items:
Foreign currency translation adjustments (15.8) 2.8
------- -----
Total comprehensive income $ 7.4 $24.5
======= =====
</TABLE>
The components of total comprehensive income for the nine months ended June 30,
2000 and 1999 are shown in the following table:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
2000 1999
---- ----
<S> <C> <C>
Net earnings $144.8 $18.7
Other comprehensive income items:
Foreign currency translation adjustments (26.9) 4.9
Write-off translation balance of disposed affiliate 9.7 -
------- ------
Total comprehensive income $127.6 $23.6
======= =====
</TABLE>
NOTE 8 - Discontinued operations consist of Energizer's worldwide rechargeable
Original Equipment Manufacturers' (OEM) business, which was sold to Moltech
Corporation for approximately $20.0 on November 1, 1999. The OEM business is
accounted for as a discontinued operation in Energizer's combined financial
statements. The current nine-month results include after-tax income of $1.2
related to the final settlement of the sale transaction. The prior year nine
month results include a net loss from discontinued operations of $5.6 and a net
loss on disposition of discontinued operations of $74.2.
NOTE 9 - 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 and repaid the interim funding facilities.
Energizer's financing agreements include the following: private placement notes
of $175.0 with maturities of 3 to 10 years; borrowings of $232.0 under
revolving credit facilities, generally with 5 year maturities; an agreement to
sell domestic trade receivables as discussed below; and other short-term
borrowings. The average interest rate on the short-term and long-term debt is
approximately 7.3% and 7.8%, respectively. Approximately $220.0 of the long-term
debt has a variable interest rate. The interest rates on the long-term debt
range from 7.3% up to 8.0%. Energizer maintains total committed debt facilities
of $750.0, of which $343.0 remained available as of June 30, 2000. Under the
terms of the facilities, the ratio of Energizer's total indebtedness to its
EBITDA cannot be greater than 3:1 and the ratio of its EBIT to total interest
expense must exceed 3:1.
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), under SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." 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. The SPE is
not consolidated for financial reporting purposes. Energizer's investment in
the SPE is classified as Other Current Assets on the Consolidated Balance Sheet
as disclosed in Note 10 below.
As of June 30, 2000, Energizer has sold $211.5 of outstanding accounts
receivable to the SPE. The SPE has sold the receivables to an unrelated third
party for $84.3 in cash and a subordinated retained interest in the remaining
$127.2 of receivables. The net proceeds of the transaction were used to reduce
various short-term debt instruments. The proceeds are reflected as operating
cash flows in the Company's Consolidated Statement of Cash Flows.
NOTE 10 - Other Current Assets consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
<S> <C> <C>
2000 1999
------ ------
Retained interests in Energizer Receivables Funding Corp. $127.2 $ -
Miscellaneous receivables 33.4 52.7
Other current assets 78.8 68.6
------ ------
$239.4 $121.3
====== ======
</TABLE>
NOTE 11 - Investments and Other Assets consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
<S> <C> <C>
2000 1999
------ ------
Goodwill $177.1 $205.0
Other intangible assets 85.2 94.4
Pension asset 99.6 -
Deferred charges and other assets 27.0 20.3
------ ------
$388.9 $319.7
====== ======
</TABLE>
The increase in pension asset reflects the net pension assets transferred in
connection with the spin off from Ralston's pension plans to Energizer pension
plans.
NOTE 12 - Other Liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, September 30,
<S> <C> <C>
2000 1999
------ ------
Postretirement benefits liability $ 87.3 $ -
Other non-current liabilities 62.6 23.0
------ ------
$149.9 $23.0
====== =====
</TABLE>
The increase in postretirement benefit reflects the transfer of certain post
retirement medical and life insurance benefit liabilities from Ralston to
Energizer in connection with the spin off. The increase in other non-current
liabilities reflects the transfer of certain deferred compensation, pension plan
and deferred tax liabilities from Ralston to Energizer in connection with the
spin off.
NOTE 13 - On May 8, 2000, Energizer's Board of Directors approved the grant of a
total of 6,365,000 non-qualified stock options to key employees and directors of
the Company, under the terms of the 2000 Incentive Stock Plan. The options,
which vest periodically over the next five years, were granted with an exercise
price of $17 per share, the closing price of the Energizer common stock on the
date of grant. In addition, the Board of Directors approved the grant of up to
625,000 restricted stock equivalents to a group of key employees and directors
upon their purchase of an equal number of shares of Energizer common stock
within a specified period. Such grants, when made, will also be pursuant to the
terms of the 2000 Incentive Stock Plan. The restricted stock equivalents will
vest three years from their respective dates of grant and will convert into
unrestricted shares of Energizer common 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.
NOTE 14 - Basic earnings per share is based on the average number of common
shares outstanding during the period. Diluted earnings per share is based on
the average number of shares used for the basic earnings per share calculation,
adjusted for the dilutive effect of stock options and restricted stock
equivalents.
The following table sets forth the computation of basic and diluted earnings per
share for the quarter ended June 30, 2000. The historical basis financial
statements for the quarter ended June 30, 1999 and the nine month periods ended
June 30, 2000 and June 30, 1999 reflect periods during which Energizer's
business was operated as a business segment of Ralston. As such, earnings per
share data does not provide meaningful information about the results of
operations of Energizer for such periods.
<TABLE>
<CAPTION>
Quarter ended
June 30,
2000
----
<S> <C>
Numerator
Numerator for basic earnings per share -
Net earnings $ 23.2
Effect of dilutive securities -
---------
Numerator for dilutive earnings per share -
Net earnings $ 23.2
=========
Denominator
Denominator for basic earnings per share -
Weighted average shares 95.6
=========
Effect of dilutive securities
Stock Options 0.1
Restricted Stock Equivalents 0.2
---------
0.3
Denominator for dilutive earnings per share -
Weighted-average shares and assumed conversions 95.9
=========
Basic earnings per share $ 0.24
=========
Diluted earnings per share $ 0.24
=========
</TABLE>
NOTE 15 - The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") and Statement of Financial
Accounting Standards No. 138 ("FAS 138"), an amendment of FASB Statement No.
133. The Statements are effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Statements establish accounting and
reporting standards for derivative financial instruments. The Statement
requires recognition of derivatives in the statement of financial position, to
be measured at fair value. Gains or losses resulting from changes in the value
of derivatives would be accounted for depending on the intended use of the
derivative and whether it qualifies for hedge accounting. The Company is
currently evaluating the impact of FAS 133.
NOTE 16 - The pro forma combined statement of earnings for the nine months ended
June 30, 2000 presents the combined results of Energizer's operations assuming
the spin-off had occurred as of October 1, 1999. Such statement of earnings has
been prepared by adjusting the historical statement of earnings to indicate the
effect of estimated costs and expenses and the recapitalization associated with
the spin-off.
The pro forma statement of earnings may not necessarily reflect the combined
results of operations that would have existed had the spin-off been effected on
the dates specified nor are they necessarily indicative of future results.
<TABLE>
<CAPTION>
ENERGIZER HOLDINGS, INC.
------------------------
Pro Forma Combined Statement of Earnings
----------------------------------------
Nine Months Ended June 30, 2000
-------------------------------
(In millions except per share data - unaudited)
-----------------------------------------------
<S> <C> <C> <C>
ADJUSTMENTS
RELATED TO
HISTORICAL DISTRIBUTION PRO FORMA
------------ -------------- -----------
Net Sales $ 1,436.3 $ - $ 1,436.3
Costs and Expenses
Cost of products sold 720.7 - 720.7
Selling, general and administrative 285.8 4.0(a) 289.8
0.8(b)
(0.8)(c)
Advertising and promotion 142.4 - 142.4
Research and development 37.6 - 37.6
Costs related to spin-off 5.5 - 5.5
Loss on disposition of Spanish affiliate 15.7 - 15.7
Interest 16.2 17.1(d) 33.3
------------ -------------- -----------
1,223.9 21.1 1,245.0
------------ -------------- -----------
Earnings from continuing operations
before income taxes 212.4 (21.1) 191.3
Income taxes (68.8) (23.4)(e) (83.8)
8.4 (f)
------------ -------------- -----------
Earnings from continuing operations $ 143.6 $ (36.1) $ 107.5
============ ============== ===========
Earnings per share from continuing operations (g) $ 1.11
===========
Weighted average shares of common stock (g) 96.3
===========
<FN>
(a) To reflect the incremental costs associated with becoming a stand-alone company including
board of director costs, stock exchange registration fees, shareholder record keeping
services, external financial reporting, treasury services, tax planning and compliance,
certain legal expenses and compensation planning and administration.
(b) To adjust pension income on plan assets transferred to Energizer plans upon the spin-off.
(c) To eliminate expense of certain post retirement benefits to be retained by Ralston.
(d) To reflect the increase in interest expense associated with debt levels assigned to Energizer
upon the spin-off. The adjustment reflects an average interest rate of 6.7% for $67.0 of
incremental notes payable and 7.2% for $411.0 of incremental long-term debt. Approximately
$303.0 of the incremental debt has a variable interest rate. A 1/8% variation in the
interest rate would change interest expense by $.2.
(e) To reflect taxes as if Energizer was a single, stand-alone U.S. taxpayer.
(f) To reflect tax effect of the above pro forma adjustments.
(g) The number of shares used to compute earnings per share is based on the weighted average
number of basic 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 June 30, 2000.
</TABLE>
ENERGIZER HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL INFORMATION
(DOLLARS IN MILLIONS)
BUSINESS OVERVIEW
Primary battery category sales grew strongly for the nine months ended June
30, 2000, particularly in the U.S., reflecting continuing electronic device
growth, retail promotional emphasis and Y2K preparedness demand. For the
quarter, category growth was below historical levels reflecting continued
effects of consumer stockpiling in late 1999. A.C. Nielsen measured the U.S.
alkaline battery market up 14% for the nine months and up 6% for the quarter
ended June 30, 2000.
OPERATING RESULTS
Net earnings for the nine months ended June 30, 2000 were $144.8 compared
to $18.7 for the nine months ended June 30, 1999. Current year net earnings
include a net gain on disposition of discontinued operations of $1.2 related to
the final settlement of the sale of discontinued operations. Prior year results
include a net loss from discontinued operations of $5.6 and a net loss on
disposition of discontinued operations of $74.2. Discontinued operations results
are related to the Original Equipment Manufacturers' (OEM) rechargeable battery
business sold on November 1, 1999, as discussed below.
Earnings from continuing operations were $143.6 for the current nine months
compared to $98.5 in the prior year nine months. Included in the current nine
months earnings from continuing operations are one-time after-tax spin-off costs
of $3.3, a pre-tax loss of $15.7 on the disposition of Energizer's Spanish
affiliate and related capital loss tax benefits of $24.4. Earnings from
continuing operations for the nine months last year include pre-tax and
after-tax provisions for restructuring of $17.0 and $14.6, respectively, and
capital loss tax benefits of $3.3. Excluding these items, earnings from
continuing operations would have been $138.2 compared to $109.8 last year, an
increase of 26%.
For the quarter ended June 30, 2000, net earnings were $23.2 compared to
net earnings of $21.7 for the same quarter in 1999. Net earnings for the prior
year third quarter include after-tax restructuring charges of $8.5 and capital
loss tax benefits of $3.3. Earnings from continuing operations, before the
unusual items discussed above, decreased $3.7, or 14%, for the quarter on higher
interest expense reflecting incremental debt assumed immediately before the spin
off. As part of the spin-off from Ralston Purina Company, Ralston borrowed
$478.0 in bank debt. The repayment obligation of this debt was assigned to
Energizer resulting in an after-tax increase in interest expense of
approximately $5.0 in the current quarter compared to the same quarter last
year.
Net sales for the nine months ended June 30, 2000 increased $49.0, or 4%,
as a 9% increase in North America and a 4% increase in the Asia Pacific region
were partially offset by a 12% decline in Europe, reflecting currency
devaluation. Sales in the North America and Asia Pacific segments for the
quarter ended December 31, 1999 benefited from significantly higher demand
driven by Y2K preparedness concerns and increased market share in key countries.
For the quarter ended June 30, 2000, sales increased $3.6, or 1%, with North
American increases partially offset by declines in other world areas as
described in the Segment Results section below.
Gross margin for the current nine months and quarter increased $71.2 and
$13.8, respectively, benefiting from higher sales and lower production costs.
Gross margin percentage increased from 46.4% in the nine months last year to
49.8% this year. For the quarter, gross margin percentage improved from 45.9%
to 48.9%.
SEGMENT RESULTS
Operations are managed via four major geographic areas--North America
(which includes the U.S. and Canada), Asia Pacific, Europe, and South and
Central America (including Mexico). This structure is the basis for the
Company's reportable operating segment information, as included in the tables in
Note 6 to the Combined Financial Statements for the quarter and nine-month
periods ended June 30, 2000 and June 30, 1999, respectively.
North America
Net sales to customers for North America increased $69.7, or 9%, for the
current nine months. Volume increases accounted for $88.6 of the sales
increase, partially offset by unfavorable pricing and product mix. Significant
volume gains in the first quarter driven by strong Y2K preparedness buying and
retail promotional emphasis were eroded by declines in the second and third
quarter as retail customers worked through remaining stocks from accelerated
first quarter buying.
For the quarter, sales increased $13.4, or 6%, primarily on incremental
sales related to the launch of the new super premium "Energizer e2 " brand on
June 19, 2000. Existing product lines experienced decreased unit volume in the
quarter while average sales price per unit increased as bonus pack promotions
declined sharply compared to last year's third quarter.
At the consumer level, sales remained strong in the quarter as Energizer's
alkaline sales increased 9%, as measured by A. C. Nielsen, compared to overall
alkaline battery category growth of 6%. Energizer's alkaline share, as measured
by A. C. Nielsen, increased .8 share points to 31.7 compared to the same quarter
last year.
Segment profit increased $30.6 and $7.8 for the nine months and quarter,
respectively, an increase of 15% in both periods. Gross margin increased $52.4
for the nine months, with higher volume contributing $42.9. Lower production
costs were partially offset by unfavorable pricing and product mix. Gross
margin for the quarter increased $15.5 on lower production costs, gross margin
contribution from "Energizer e2" and lower level of bonus pack promotions.
Marketing and distribution costs increased $14.2 and $5.5 in the nine months and
quarter, respectively, reflecting enhanced focus on share growth and, in the
quarter, impact of the "Energizer e2" launch. Advertising and promotion expense
increased $16.3 and $6.3 in the nine months and quarter, respectively. The
increase in the quarter is attributable to "Energizer e2". Lower administrative
and business realignment costs in the current year also contributed favorably to
nine-month and quarter results.
Advertising and promotion spending is expected to increase substantially in
the fourth quarter to support the launch of "Energizer e2" as well as continued
support for the "Energizer" and "Eveready" branded portfolio.
Asia Pacific
Net sales to customers for Asia Pacific increased $12.6, or 4%, for the
current nine months. Higher volume, primarily alkaline products, contributed
$10.9 of the increase. Sales for the quarter were down 1% as volume increases
were more than offset by unfavorable currency exchange rates.
Segment profit for the nine months increased $15.8, or 23%. Gross margin
increased $21.0 on higher customer sales, lower production costs and higher
inter-segment sales. Advertising and promotion expenses increased $4.2,
primarily in the first quarter. For the current quarter, segment profit
increased $3.1, or 14%, as lower production costs and higher inter-segment
profit were partially offset by higher management costs.
South and Central America
Net sales to customers for South and Central America decreased $3.4, or 3%,
for the current nine months. Unfavorable currency effects of $6.1 were
partially offset by favorable pricing and product mix. Sales for the quarter
declined $.9, or 3%, primarily on unfavorable currency effects.
Segment profit for the nine months decreased $.8 or 8%. Unfavorable
impacts of currencies were partially mitigated by higher prices and product mix.
Lower product costs were offset by higher management costs. For the quarter,
segment profit decreased $2.0 on higher management costs and unfavorable
currency impact.
Europe
Net sales to customers for Europe decreased $29.9, or 12%, for the nine
months with currency devaluation accounting for $22.8 as well as lower carbon
zinc volumes. For the quarter, sales declined $7.8, or 13%, as unfavorable
currency impact of $6.3, unfavorable pricing and product mix and lower carbon
zinc volume were partially offset by a 10% increase in alkaline volume.
Segment profit for the nine months increased $6.0 as unfavorable currency
impacts of $5.1 were more than offset by lower costs associated with plant
closing and other business realignment activities. For the quarter, segment
profitability decreased $2.6 as impacts of sales declines were partially offset
by lower costs. Unfavorable currency impacts accounted for $1.0 of the profit
decline.
CORPORATE EXPENSES
Corporate expenses decreased $6.4 in the nine months and $2.1 in the
quarter on lower consulting and information systems spending and higher pension
income, partially offset by higher management expenses associated with becoming
a freestanding company.
COSTS RELATED TO SPIN OFF
During the nine months ended June 30, 2000, Energizer recorded one-time
spin related costs of $5.5 pre-tax, or $3.3 after-tax. These costs include
legal fees, charges related to the vesting of certain compensation benefits, and
other costs triggered by or associated with the spin-off.
LOSS ON DISPOSITION OF SPANISH AFFILIATE
During the nine months ended June 30, 2000, Energizer recorded a $15.7
pre-tax loss on the sale of its Spanish affiliate. 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.
RESTRUCTURING CHARGES
During the nine month period ended June 30, 1999, Energizer recorded net
after-tax and pre-tax provisions for restructuring of $14.6 and $17.0,
respectively. During the quarter ended June 30, 1999, Energizer recorded net
after-tax and pre-tax provisions for restructuring of $8.5 and $11.0,
respectively. Of these pre-tax charges, $2.1 related to inventory write-downs
and is classified as cost of products sold in the combined statement of
earnings. The remaining charges were primarily termination benefits associated
with the 1997 alkaline and carbon zinc production restructuring plan for Europe.
Capital loss tax benefits of $3.3 associated with prior restructuring activities
are included in the prior quarter and nine-month results.
During the nine month period ended June 30, 2000, approximately 180
employees were terminated in connection with restructuring accruals established
in prior years. Except for disposition of certain assets held for disposal,
substantially all actions associated with the 1997 and 1999 restructuring plans
have been completed as of June 30, 2000. Activities impacting the restructuring
reserve during the nine month period ended June 30, 2000, are presented in Note
5 to the Combined Financial Statements.
INTEREST EXPENSE AND OTHER FINANCING COSTS
Interest expense increased $10.5 and $8.5 for the nine months and quarter
reflecting incremental debt assumed by Energizer immediately prior to the
spin-off. Other financing costs increased reflecting lower foreign exchange
gains, lower investment income and the discount on the sale of accounts
receivable financing arrangement.
INCOME TAXES
Income taxes, which include federal, state and foreign taxes, were 32.4% of
earnings from continuing operations in the current nine months, compared to
41.9% in the nine months last year. Income taxes for the current nine months
includes capital loss benefits related to the sale of the Spanish affiliate
discussed above of $24.4. The prior nine months income taxes include ordinary
and capital loss tax benefits of $5.7 associated with restructuring provisions.
Absent these unusual items, the tax rate for the current and prior nine-month
periods would have been 40.8% and 41.1%, respectively. The decrease in the tax
rate is due primarily to a favorable mix of domestic and foreign earnings.
DISCONTINUED RECHARGEABLE OEM BATTERY BUSINESS
Discontinued operations consist of Energizer's worldwide rechargeable
Original Equipment Manufacturers' (OEM) battery business. In March 1999, the
Board of Directors of Ralston Purina Company announced its intention to exit
this business to allow Energizer to focus on its primary battery business. On
November 1, 1999, this business was sold to Moltech Corporation for
approximately $20.0. Actual pretax operating losses during the divestment
period through the sale date totaled $15.9.
FINANCIAL CONDITION
Cash flow from continuing operations was $223.1 for the nine months ended
June 30, 2000 compared to $218.5 for the same period in fiscal 1999. Capital
expenditures totaled $50.1 and $51.2 for the nine months ended June 30, 2000 and
1999, respectively. Net transactions with Ralston prior to (and in connection
with) the spin-off resulted in cash usage of $210.7 and $189.2 in the current
and prior year, respectively. Working capital was $406.5 at June 30, 2000
compared to $478.1 at September 30, 1999, reflecting seasonal reductions in
operating working capital and higher debt levels.
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 and repaid the interim funding facilities.
Energizer's financing agreements include the following: private placement notes
of $175.0 with maturities of 3 to 10 years; borrowings of $232.0 under revolving
credit facilities, generally with 5 year maturities; an agreement to sell
domestic trade receivables as discussed below; and other short-term borrowings.
The average interest rate on the short-term and long-term debt is approximately
7.3% and 7.8%, respectively. Approximately $220.0 of the long-term debt has a
variable interest rate. The interest rates on the long-term debt range from 7.3%
to 8.0%. Energizer maintains total committed debt facilities of $750.0, of
which $343.0 remained available as of June 30, 2000. Under the terms of the
facilities, the ratio of Energizer's total indebtedness to its EBITDA cannot be
greater than 3:1 and the ratio of its EBIT to total interest expense must exceed
3:1.
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. Energizer received $84.3 of proceeds from this
arrangement, which was used to repay interim funding facilities as discussed
above.
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.
MARKET RISK
Energizer has interest rate risk with respect to interest expense on
variable rate debt. A hypothetical 10% adverse change in all interest rates
would have an annual unfavorable impact of $1.6 on Energizer's net earnings and
cash flows based on current debt levels.
FORWARD-LOOKING STATEMENTS
Statements in this document that are not historical, particularly
statements regarding advertising and promotion plans, the continued availability
of credit facilities, the ability to meet liquidity requirements and increase in
market share 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. Unforeseen
fluctuations in levels of cash available for promotional spending, alternative
investment opportunities, and strategic changes in Energizer's overall global
marketing program may affect the level of spending on advertising and
promotional programs. Energizer's ability to maintain compliance with its debt
covenants, including the ratios described under "Financial Conditions", as well
as changes in its operating cash flows, could limit its ability to meet future
operating expenses and liquidity requirements, fund capital expenditures and
service its debt as it becomes due. Consumer response over time to "Energizer
e2" batteries, continuing retailer support, and new promotions, advertising
campaigns or product introductions by Energizer's competitors may affect
Energizer's market share. Additional risks and uncertainties include those
detailed from time to time in Energizer's publicly filed documents, including
Energizer's Registration Statement on Form 10, as amended, and its current
report on Form 8-K dated April 25, 2000.
PART II - OTHER INFORMATION
------------------
There is no information required to be reported under any items except those
indicated below.
Item 6 - Exhibits and Reports on Form 8-K
(a) 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 filed with this report.
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
27 Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K dated June 27, 2000, was filed setting forth the
text of a press release issued by the Company on the same date which clarified
comments made by a Company executive concerning market share growth.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGIZER HOLDINGS, INC.
-----------------------------------------
Registrant
By: /s/ Daniel E. Corbin
Daniel E. Corbin
Executive Vice President, Finance and Control
Date: August 10, 2000
EXHIBIT INDEX
----------------------
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
EX-27 Financial Data Schedule for Third Quarter 2000
