Energizer 2008 Annual Report Download - page 40

38 ENERGIZER HOLDINGS, INC. 2008 Annual Report
Notes to Consolidated Financial Statements
(Dollars in millions, except per share and percentage data)
The expected return on plan assets was determined based on historical
and expected future returns of the various asset classes, using the target
allocations described below. Specifically, the expected return on equities
(U.S. and foreign combined) is 9.5%, and the expected return on debt
securities (including higher-quality and lower-quality bonds) is 5.5%.
10. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution plan, which extends
participation eligibility to substantially all U.S. employees. The Com-
pany matches 50% of participants’ before-tax contributions up to 6%
of eligible compensation. In addition, participants can make after-tax
contributions into the plan. The participant’s after-tax contribution of
1% of eligible compensation is matched with a 325% Company contri-
bution to the participant’s pension plan account. Amounts charged to
expense during fiscal 2008, 2007 and 2006 were $8.5, $5.6 and $5.4,
respectively, and are reflected in SG&A and cost of products sold in
the Consolidated Statements of Earnings. The increase in expense for
2008 was due primarily to the addition of Playtex.
11. DEBT
Notes payable at September 30, 2008 and 2007 consisted of notes
payable to financial institutions with original maturities of less than one
year of $264.4 and $43.0, respectively, and had a weighted-average
interest rate of 4.7% and 6.7%, respectively.
The detail of long-term debt at September 30 for the year indicated is
as follows:
2008 2007
Private Placement, fixed interest rates ranging
from 4.2% to 7.3%, due 2009 to 2017
$2,230.0 $1,475.0
Term Loan, variable interest at LIBOR + 100
basis points, or 5.05%, due 2012 465.5
–
Singapore Bank Syndication, multi-currency
facility, variable interest at LIBOR + 80 basis
points, or 4.85%, due 2010
– 107.0
Total long-term debt, including current maturities 2,695.5 1,582.0
Less current portion 106.0 210.0
Total long-term debt $2,589.5 $1,372.0
The Company maintains total committed debt facilities of $3,449.9, of
which $479.0 remained available as of September 30, 2008.
Under the terms of the Company’s debt facilities, the ratio of the
Company’s indebtedness to its EBITDA cannot be greater than 4.00 to
1, and may not remain above 3.50 to 1 for more than four consecutive
quarters. If the ratio is above 3.50 to 1, the Company is required to pay
an additional 75 basis points in interest for the period in which the ratio
exceeded 3.50 to 1. In addition, the ratio of its current year Earnings
Before Interest and Taxes (EBIT) to total interest expense must exceed
3.00 to 1. The Company’s ratio of indebtedness to its pro forma
EBITDA, as defined in the agreements, was 3.25 to 1, and the ratio of
its pro forma EBIT, as defined in the agreements, to total interest
expense was 3.91 to 1 as of September 30, 2008. As a result of the
ratio of indebtedness to pro forma EBITDA during fiscal 2008, which
was above 3.50 to 1 for the period from January 1, 2008 through
September 30, 2008, at which time the ratio reduced to 3.25 to 1, the
Company had higher pre-tax interest expense on fixed borrowings of
approximately $13.0 for the current year. Failure to comply with the
above ratios or other covenants could result in acceleration of maturity,
which could trigger cross defaults on other borrowings. The Company
believes that covenant violations, which may result in acceleration
of maturity, are unlikely. The Company’s fixed rate debt is callable by
the Company, subject to a “make whole” premium, which would be
required to the extent the underlying benchmark U.S. treasury yield has
declined since issuance.
The Company routinely sells a pool of U.S. accounts receivable through
a financing arrangement between Energizer Receivables Funding
Corporation (the SPE), which is a bankruptcy-remote special purpose
entity subsidiary of the Company, and outside parties (the Conduits).
Under the current structure, funds received from the Conduit are
treated as borrowings rather than proceeds of accounts receivables
sold for accounting purposes. Borrowings under this program receive
favorable treatment in the Company’s debt compliance covenants. The
program renews annually in May. Further deterioration in credit markets
could result in an inability to renew the program or renewal on less
favorable terms, which may negatively impact compliance reported
Debt-to-EBITDA and may require the Company to draw on other
available committed debt facilities.
The counterparties to long-term committed borrowings consist of
a number of major international financial institutions. The Company
continually monitors positions with, and credit ratings of, counterparties
both internally and by using outside ratings agencies. The Company
has staggered long-term borrowing maturities through 2017 to mini-
mize refinancing risk in any single year and to optimize the use of free
cash flow for repayment.
Aggregate maturities on long-term debt at September 30, 2008 are as
follows: $106.0 in 2009, $301.0 in 2010, $266.0 in 2011, $231.0 in
2012, $701.5 in 2013 and $1,090.0 thereafter.
12. PREFERRED STOCK
The Company’s Articles of Incorporation authorize the Company to
issue up to 10 million shares of $0.01 par value of preferred stock.
During the three years ended September 30, 2008, there were no
shares of preferred stock outstanding.
13. SHAREHOLDERS’ EQUITY
On March 16, 2000, the Board of Directors declared a dividend of
one share purchase right (Right) for each outstanding share of ENR
common stock. Each Right entitles a shareholder of ENR stock to
purchase an additional share of ENR stock at an exercise price of
$150.00, which price is subject to anti-dilution adjustments. 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 tender 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 shareholders (a Permitted Offer). At the time