Energizer 2007 Annual Report Download - page 39

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Energizer Holdings, Inc. 2007 Annual Report
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 ten-
der 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 share-
holders (a Permitted Offer). At the time that 20% or more of the
outstanding ENR stock is actually acquired (other than in connec-
tion 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 the
Company merges with any other person or group after the Rights
become exercisable, a holder of a Right may purchase, at the exer-
cise price, common stock of the surviving entity having a value
equal to twice the exercise price. If the Company 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 pur-
chase, at the exercise price, common stock of the acquiring entity
having a value equal to twice the exercise price.
The Company can redeem the Rights at a price of $0.01 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), the Company may exchange each Right for
one share of ENR stock. The Company’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 out-
standing 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, 2007, there were 300 million shares of ENR
stock authorized, of which approximately 3.4 million shares were
reserved for issuance under the 2000 Incentive Stock Plan.
Beginning in September 2000, the Company’s Board of
Directors has approved a series of resolutions authorizing the
repurchase of shares of ENR common stock, with no commitments
by the Company to repurchase such shares. On July 24, 2006, the
Board of Directors approved the repurchase of up to an additional
10 million shares and 8.0 million shares remain under such author-
ization as of September 30, 2007. During fiscal year 2007, approxi-
mately 0.8 million shares were purchased for $53.0.
13. Financial Instruments and Risk Management
Foreign Currency Contracts At times, the Company enters into
foreign exchange forward contracts and, to a lesser extent, pur-
chases options and enters into zero-cost option collars to mitigate
potential losses in earnings or cash flows on foreign currency trans-
actions. The Company has not designated any financial instruments
as hedges for accounting purposes. Foreign currency exposures are
primarily related to anticipated intercompany purchase transac-
tions and intercompany borrowings. Other foreign currency
transactions to which the Company is exposed include external
purchase transactions and intercompany receivables, dividends
and service fees.
The contractual amounts of the Company’s forward exchange
contracts were $67.1 and $21.3 in 2007 and 2006, respectively.
These contractual amounts represent transaction volume outstand-
ing and do not represent the amount of the Company’s exposure
to credit or market loss. Foreign currency contracts are generally
for one year or less.
Derivative Securities The Company uses raw materials that are
subject to price volatility. Hedging instruments are used by the
Company as it desires to reduce exposure to variability in cash flows
associated with future purchases of zinc or other commodities.
These hedging instruments are accounted for under FAS 133 as
cash flow hedges. At September 30, 2007, the fair market value of
the Company’s outstanding hedging instruments was an unrealized
pre-tax loss of $15.3. Realized gains and losses are reflected as
adjustments to the cost of the raw materials. Over the next 12
months, approximately $13.4 of the loss recognized in
Accumulated Other Comprehensive Income will be recognized in
earnings. For hedge ineffectiveness, losses of $0.5 were recorded
directly to Cost of Products Sold during the current fiscal year.
Contract maturities for these hedges extend into fiscal year 2009.
During the current year, the Company discontinued hedge
accounting treatment for some of its contracts, most of which were
settled or unwound during the current fiscal year. These contracts
no longer met the accounting requirements of a cash flow hedge
because it was probable that the original forecasted transactions
will not occur by the end of the originally specified time period.
The pre-tax losses on these hedges of $2.5 were recorded in Cost of
Products Sold.
Prepaid Share Options A portion of the Company’s deferred com-
pensation liabilities is based on Company stock price and is subject
to market risk. The Company has entered into a net-cash settled
prepaid share option transaction with a financial institution to miti-
gate this risk. The change in fair value of the prepaid share options
is recorded in SG&A in the Consolidated Statements of Earnings.
Changes in value of the prepaid share option approximately offset
the after-tax changes in the deferred compensation liabilities tied
to the Company’s stock price. Market value of the Company’s
investment in the prepaid share options was $59.3 and $50.8 at
September 30, 2007 and 2006, respectively, with approximately 0.5
and 0.7 million prepaid share options outstanding at September 30,
2007 and 2006, respectively. The settlement date of the options
outstanding at 2007 year-end is September 30, 2008. The change
in fair value of the prepaid share option for the year ended