Energizer 2004 Annual Report Download - page 18

ENR 2004 Annual Report
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Most recently, the Board of Directors approved the repurchase of up to
an additional 10 million shares, which resolution replaced all previous
authorizations. Subsequent to September 30, 2004 and through
November 15, 2004, approximately 0.6 million shares were purchased
for $25.0 under the most recent authorization, pursuant to the terms of
a Rule 10b5-1 Repurchase Plan entered into with an independent broker.
As of November 15, 2004, there are 7.7 million shares remaining under
the current authorization.
The Company 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 the Company’s
credit facilities, although no guarantee can be given in this regard.
Inflation
Management recognizes that inflationary pressures may have an adverse
effect on the Company, through higher material, labor and transportation
costs, asset replacement costs and related depreciation, and other costs.
In general, the Company has been able to offset or minimize inflation
effects through other cost reductions and productivity improvements,
thus inflation has not been a significant factor in the three years ended
September 30, 2004. Recently, the cost of oil and commodities used in
the Company’s products has increased to levels well above those of
2004. The Company’s ability to fully mitigate such cost increases through
cost cutting and productivity or to raise prices in the future are not certain.
Seasonal Factors
The Company’s battery segment 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 battery sales accounted for 31%, 32% and 33% of total battery
net sales in 2004, 2003 and 2002, respectively.
Environmental Matters
The operations of the Company, like those of other companies engaged
in the battery and shaving products businesses, 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.
The Company has received notices from the U.S. Environmental
Protection Agency, state agencies and/or private parties seeking contribu-
tion 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 seven 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 determi-
nations of the actual responsibility of the Company and the other PRPs
at the site, appropriate investigatory and/or remedial actions, and alloca-
tion of the costs of such activities among the PRPs and other site users.
The amount of the Company’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, the Company 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, the Company
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 the Company
and Ralston Purina Company, however, which has been assumed by an
affiliate of The Nestle Corporation, Ralston’s successor is obligated to
indemnify the Company for 50% of any such liabilities in excess of $3.0.
Under the terms of the Stock and Asset Purchase Agreement between
Pfizer, Inc. and the Company, relating to the acquisition of the SWS
business, environmental liabilities related to pre-closing operations of
that business, or associated with properties acquired, are generally
retained by Pfizer, subject to time limitations varying from two years to
10 years following closing with respect to various classes or types of lia-
bilities, minimum thresholds for indemnification by Pfizer, and maximum
limitations on Pfizer’s liability, which thresholds and limitations also vary
with respect to various classes or types of liabilities.
Many European countries, as well as the European Union, have been very
active in adopting and enforcing environmental regulations. In many
ENERGI ZER HOLDINGS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Continued
(Dollars in millions, except per share and percentage data)