Energizer 2007 Annual Report Download - page 40

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Energizer Holdings, Inc. 2007 Annual Report
September 30, 2007 and 2006 resulted in income of $23.2 and
$10.8, respectively.
Concentration of Credit Risk The counterparties to foreign cur-
rency contracts consist of a number of major international financial
institutions and are generally institutions with which the Company
maintains lines of credit. The Company 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.
The Company continually monitors positions with, and credit
ratings of, counterparties both internally and by using outside rat-
ing agencies. The Company has implemented policies that limit the
amount of agreements it enters into with any one party. While non-
performance by these counterparties exposes the Company to
potential credit losses, such losses are not anticipated due to the
control features mentioned.
The Company 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. The Company performs ongoing evaluations of its cus-
tomers’ financial condition and creditworthiness, but does not
generally require collateral. The Company’s largest customer
had obligations to the Company with a carrying value of $91.1
at September 30, 2007. While the competitiveness of the retail
industry presents an inherent uncertainty, the Company does
not believe a significant risk of loss from a concentration of credit
risk exists with respect to accounts receivable.
Financial Instruments The Company’s financial instruments
include cash and cash equivalents, short-term and long-term debt
and foreign currency contracts. Due to the nature of cash and cash
equivalents and short-term borrowings, including notes payable, car-
rying amounts on the balance sheet approximate fair value.
At September 30, 2007 and 2006, the fair market value of fixed
rate long-term debt was $1,423.1 and $1,454.8, respectively, com-
pared to its carrying value of $1,475.0 and $1,485.0, respectively.
The book value of the Company’s variable rate debt approximates
fair value. The fair value of the long-term debt is estimated using
yields obtained from independent pricing sources for similar types
of borrowing arrangements.
The fair value of foreign currency contracts is the amount that
the Company would receive or pay to terminate the contracts, con-
sidering first, quoted market prices of comparable agreements, or in
the absence of quoted market prices, such factors as interest rates,
currency exchange rates and remaining maturities. Based on these
considerations, the Company would make an insignificant payment
for outstanding foreign currency contracts at September 30, 2007
and 2006. However, these payments are unlikely due to the fact that
the Company enters into foreign currency contracts to hedge identi-
fiable foreign currency exposures, and as such would generally not
terminate such contracts.
14. Environmental and Legal Matters
Government Regulation and Environmental Matters The opera-
tions of the Company, like those of other companies engaged in the
battery and wet 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 contribution,
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 two state-
designated sites or other sites outside of the U.S.
Accrued environmental costs at September 30, 2007 were $12.5,
of which $2.6 is expected to be spent in fiscal 2008. This accrual is
not measured on a discounted basis. It is difficult to quantify with
certainty the cost of environmental matters, particularly remediation
and future capital expenditures for environmental control equip-
ment. Nevertheless, based on information currently available, the
Company believes the possibility of material environmental costs in
excess of the accrued amount is remote.
Legal Proceedings The Company and its subsidiaries are parties to a
number of legal proceedings in various jurisdictions arising out of the
operations of its businesses. Many of these legal matters are in prelimi-
nary stages and involve complex issues of law and fact, and may pro-
ceed for protracted periods of time. The amount of liability, if any,
from these proceedings cannot be determined with certainty.
However, based upon present information, the Company believes that
its ultimate liability, if any, arising from pending legal proceedings,
asserted legal claims and known potential legal claims which are likely
to be asserted, should not be material to the Company’s financial posi-
tion, taking into account established accruals for estimated liabilities.
15. Other Commitments and Contingencies
An international affiliate of the Company has $8.3 of funds
deposited in a bank account that is acting as collateral for a certain
bank loan. The Company has reflected this bank deposit as
restricted cash, which is included in other current assets on the
Consolidated Balance Sheet. The loan was initiated in June 2004
for a three month period. At each maturity, the Company renewed
the agreement. As the loan amount changes, the funds on deposit
will be required to increase or decrease with the loan amount.
Beginning in 2006, the impact of this transaction is reflected in
the investing section of the Consolidated Statement of Cash Flows.
Total rental expense for all operating leases was $28.0, $27.1 and
$26.2 in 2007, 2006 and 2005, respectively. Future minimum rental
commitments under noncancelable operating leases in effect as of
September 30, 2007 were $14.2 in 2008, $11.6 in 2009, $9.5 in 2010,
$6.2 in 2011, $2.8 in 2012 and $9.3 thereafter. These leases are pri-
marily for office facilities.
Notes to Consolidated Financial Statements
(Dollars in millions, except per share and percentage data)