Energizer 2003 Annual Report Download - page 40

Page 38 ENR 2003 ANNUAL REPORT
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 per-
son 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 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, 2003, there were 300 million shares of ENR stock
authorized, of which approximately 10.1 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. In May
2002, the Board approved a new share repurchase plan authorizing the
repurchase of up to an additional 5 million shares of common stock,
which was substantially completed by March 2003. 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. At a meeting
of the Board’s Executive committee held on July 30, 2003, an authori-
zation for the repurchase of up to an additional 10.0 million shares was
approved. Subsequent to September 30, 2003 and through November
18, 2003, approximately 1.4 million shares were purchased for $50.5
under this authorization.
17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Foreign Currency Contracts At times, 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 designat-
ed any financial instruments as hedges for accounting purposes. Foreign
currency exposures are primarily related to anticipated intercompany pur-
chase 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 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.
2003 2002
INSTRUMENT
Options $ – $ 25.8
Forwards 16.4 8.7
Prepaid Share Option Transaction A portion of Energizer’s deferred com-
pensation 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. The change in
fair value of the prepaid share option is recorded in selling, general and
administrative expense in the Consolidated Statement of Earnings.
Changes in value of the prepaid share option offset changes in the
deferred compensation liabilities tied to the Energizer stock price. Market
value of the prepaid share options was $39.7 and $25.5 at September
30, 2003 and 2002, respectively, with approximately 1.1 million pre-
paid share options outstanding at September 30, 2003. The settlement
date of the options outstanding at 2003 year-end is September 30,
2004. The change in fair value of the prepaid share option for the year
ended September 30, 2003 and 2002 resulted in income of $5.1 and
$2.6, respectively.
Concentration of Credit Risk The counterparties to foreign currency con-
tracts 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 coun-
terparties 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
ENERGIZER HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
(Dollars in millions, except per share data)