Energizer 2001 Annual Report Download - page 21

Energizer has received notices from the U.S. Environmental Protection Agency, state agencies and/or
private parties seeking contribution, that it has been identiÑed 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 nine 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
Ñnancially viable responsible parties.
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
Ñnancial viability, and the remediation methods and technology to be used.
In addition, Energizer undertook certain programs to reduce or eliminate the environmental contamina-
tion at the rechargeable battery facility in Gainesville, Florida, which was divested in November 1999. In
2001, the buyer, as well as its operating subsidiary which owns and operates the Gainesville facility, Ñled
petitions in bankruptcy court. In the event that the buyer would become unable to continue such programs,
Energizer could be required to bear Ñnancial responsibility for such programs as well as for other known and
unknown environmental conditions at the site.
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 signiÑcant 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.
It is diÇcult to quantify with certainty the potential Ñnancial 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 $5.9 at
September 30, 2001 for estimated liabilities, should not be material to its Ñnancial position. Such liability
could, however, be material to results of operations or cash Öows for a particular quarter or year.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The market risk inherent in Energizer's Ñnancial instruments and positions represents the potential loss
arising from adverse changes in interest rates and foreign currency exchange rates. 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
Energizer has interest rate risk with respect to interest expense on variable rate debt. At September 30,
2001 and 2000, Energizer had $160.3 and $330.0 variable rate debt outstanding. A hypothetical 10% adverse
change in all interest rates would have had an annual unfavorable impact of $.9 and $2.6 in 2001 and 2000,
respectively, on Energizer's earnings and cash Öows, 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 Asian
and Latin American countries.
Foreign Currency Exchange Rates
Energizer employs a foreign currency hedging strategy which focuses on mitigating potential losses in
earnings or cash Öows 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
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